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By | Guy Kewney 15th January 2008 10:22

Price war looms in corporate 100Mb market

Hundreds of megabits for hundreds of pounds

A corporate Ethernet price war could be on the cards, with a newcomer using Next Generation Network (NGN) technology to offer 100 megabit Ethernet for £800 a month.

Commercial Internet and other services have been, traditionally, based on legacy systems and up to six months ago the bulk of customers were asking for managed MPLS (multi-protocol label switching). But the costs of providing what modern business customers require under MPLS, SONET and other legacy protocols is very much higher than it is with a full new technology service.

Exponential-e will launch a new service today, which the firm's founder Lee Wade told The Register is intended to be "entirely disruptive". But he added that the price would not be the sole attraction for customers.

Exponential-e bases its NGN service on Alcatel-Lucent routers - a very similar technology to the Level II section of BT's 21CN - and so Lee Wade is pretty optimistic about getting a successful rollout that will be completely compatible with OpenReach's eventual product, currently being trialled in the UK. But he reckons he can do the new service "at cost, or break even" and provide several extra services, all for a fraction of the cost of managing legacy networks.

It's a gamble, Wade admitted. If he doesn't sign up new customers, he'll face discontent from existing customers who want the new price, and his bottom line will look wretched in a year's time when all the contracts start coming up for renewal.

"But the appeal is the versatility of providing VoIP, and internet, and WLAN, and virtualisation products," he said. "Right now, we'd quote £45,000 a year for this sort of service on managed MPLS. We can quote you prices starting at £800 a month for PowerNGN. But then we can go on and offer extra services, too.

Exactly how disruptive it will be remains to be seen. The first "prong" of PowerNGN's rollout will be followed in April or May by a stage two announcement aimed at larger customers.

NetTek consultant Steve Kennedy said Exponential-e's rivals would not really struggle to compete on a purely technical level. "People like Thus and Cable and Wireless and COLT - and, of course, BT - will just change an entry in the database," he said.

But he acknowledged that life could be awkward for the bigger, more established companies. "People like Thus have had NGN technology for years, back to 2001, so they can just offer whatever the market says," he said. "But where they will have trouble is with long-term contract customers who will quite probably threaten to leave if they can't get the same terms as newcomers - and that could hurt."

Wade says he's counting on this.

"This is going to be a tough year," he said. "We have plans for a 50 per cent growth rate year on year, and that's what we've achieved so far; but 2008, without some disruptive innovation like this, would be the year we struggle to hit that. With PowerNGN, we think we can exceed it. By the end of the year, I'm hoping we'll have a lot of new customers."

The publicity for the launch says: "The internet connection you receive with PowerNGN 100 is called PowerServe - it is the highest performance professional grade internet service you can get in the UK. But, if you don't need the full 100 meg internet access, that's fine. You take what internet capacity you need, and then you split up the rest of the circuit for other services or applications.

"For example," it continues, "you might get a 30 meg internet pipe, plus a 20 meg SIP trunk for VoIP phone services, plus a 50 meg direct connection to your DR or data centre. Or, next week, you may cut the data centre pipe to 45 meg, and devote 5 meg for a direct connection to your office in Manchester for video conferencing."

The key to NGN in this market is the expectation that customers will want to chop and change in this way. It would normally cost the ISP a fortune to reconfigure a legacy network; but it's a simple flip of a switch under NGN (only by comparison, we bet). Managing it is cheaper, allowing price cuts and extra services.

BT promised to respond to our request for a comment, but was unable to find a spokesman before publication date. ®

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