Ethernet over Copper Fits in Well with XO’s Financial Model

Implications: 1.      XO Communications started with 10-meg Ethernet across its entire network.   2.      In the past, the carrier just leased UNE-Ls in order to provide the service over fiber. 3.      In shifting to EoC, XO’s up-sell opportunities increased dramatically, while also winding up being more cost-effective.

Analysis:  A UNE-L cost around nine bucks and XO might have used two or three for business applications.  XO found it more cost-effective to put in five copper pairs on every installation.  With a lot more bandwidth now available, XO can now up-sell 15, 20, 30 meg services and it does not cost them anymore to do so.  

With EoC, XO can theoretically increase it coverage by tenfold because it is limited to 10 to 15 percent of enterprises that have fiber facilities.  Every business has about eight copper pairs on average.  In addition to being able to significantly increase its 10-meg offering, XO also launched a sub-10-meg solution over copper.  As other carriers using EoC want to move from regional deployment to nationwide, XO also provides a wholesale network.   

In contrast, T-Com in Hungary is using EoC as part of a somewhat different financial model.  It is migrating its whole TDM/ATM network to Ethernet because of a mandate by its CFO to significantly reduce its operating costs.  So, every E1 in its network is converted to a 2-meg Ethernet.  In addition, to achieving certain cost reduction targets that it has committed to with its investors, T-Com can also up-sell more managed services resulting in a higher ARPU.