Ethernet Layer 2

Ethernet Layer 2

Lance Spencer, Director of Data Networking & Next Generation Services

Lance Spencer, Director of Data Networking & Next Generation Services

In April 2010, TalkTalk Business installed its first Ethernet connected circuit in support of the delivery of a high availability, high throughput service to one of its Partners. The wholesale list price for a 100Mb connection over a 100Mb bearer was £12,000 per annum. Uniquely to TalkTalk Business however, at that time installation was free for a three-year contract.

Fast forward to April 2016, and we’ve processed over 40,000 Ethernet orders, and currently deliver over 1,000 connections per month. This has been a tremendous success story for both TalkTalk Business and the Channel Partners that we’ve worked closely with over the years.

About 80% of those connections were contracted on a three-year contract and the vast majority are still installed, which has turned out to be a mixed blessing for the Partners that originally sold them.

The good news is that Ethernet has turned out to be a very sticky product. The end use of the connection is either to deliver dedicated high speed, high availability access to the internet to support cloud services, or to function as one of a number of securely connected circuits in the build of a dedicated, secure MPLS IPVPN, to connect an end customer’s sites together.

In both cases, because our Partner has chosen to use TalkTalk Business’ Next Generation Network, the need for the end customer to move the connection is reduced to a minimum. The actual churn of Ethernet circuits is below 4% annually. This means that those early circuits are either running on, or are renewing for a further period. High revenues, good margins and low churn: a near perfect channel product.

From 2011, the regulators, both European and Ofcom, have decided that Openreach has been making excessive profits from the fibre tails they’ve been providing to the industry. As a result, Openreach has been forced to reduce prices substantially. This reduction is set to continue for at least two more years.

So, with prices falling it is now even easier for the channel to sell high value Ethernet based services, replacing Broadband based circuits and legacy leased lines. In addition, with the advent of SIP over high quality access to replace ISDN 30 legacy voice services, our channel partners have taken full advantage and sold more than 40,000 Ethernet connections over the last five years.

With all this good news, why is it a mixed blessing for the channel partner? Well, thanks to TalkTalk Business’ role as a market innovator in both product and pricing, and our decision to pass on the latest price changes from Openreach in full, the wholesale list price for a 100Mb connection has fallen from £12,000 in April to just £4,071 – a massive 65% reduction.

This means that a customer looking to renew at the end of a three-year contract will expect a significant price drop. Alternative providers will certainly be using the new pricing, so resellers will need to reduce the pricing for renewal of the service.

Equally, to maintain the same rate of topline growth, Partners will need to sell three times as many new circuits to offset the falling price.

Without automation, the increased volume of sales will draw in more resources to provision and support, compromising their profitability of the delivered service.

There are three ways the Partner can address this issue:

  • Automate – TalkTalk Business will roll out the UK’s most sophisticated portals and APIs for Ethernet delivery over the coming months. This will allow Partners to interlink and simplify their own systems and processes, and thus reduce costs.
  • Add Value with SIP – TalkTalk Business supply free SIP channels on all Layer 2 circuits, allowing Partners to add significant new revenue and margin streams to the underlying circuit above the traditional voice services that come from the end user sites.
  • Buy pre-configured services – This delivers Dedicated Internet Access (DIA) or full MPLS IPVPN cost effectively, reducing the overheads from maintaining and growing the Partner’s core network.

Irrespective of which of the above best suits each Partner, TalkTalk Business is well placed to meet each and every one of the needs of this rapidly changing industry.

For more information on TalkTalk Business’ services, please speak to your Account Manager.

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