XO launches cheaper Ethernet options

XO Communications this week will introduce what it calls "unprotected" Ethernet services designed for business customers who want metropolitan or intercity Ethernet but don't need the highest level of reliability and its associated cost.

The financially troubled competitive carrier also will unveil Fibre Channel and Enterprise Systems Connection (ESCON) transport options for metropolitan-area networks (MAN).

XO already offers a suite of Ethernet and wavelength services for large business customers.

But not all customers require the 99.999% availability guarantees that come with XO's existing offerings, says Garrett Hess, XO's senior product manager for Ethernet services.

XO's unprotected Ethernet services, available at 100M bit/sec and 1G bit/sec, give customers less redundancy but still include a 99.99% availability service-level agreement. By losing a nine from their reliability, customers will save from 30% to 50% off the cost of a comparable higher-grade service, Hess says.

"You still get guaranteed port-to-port bandwidth," he says. "You still get an Ethernet handoff. And there's still no customer-premise equipment cost, and XO manages the service from end to end."

Ron Kaplan, an analyst with IDC, says unprotected Ethernet services will appeal to cost-conscious companies and to businesses looking for a back-up service.

However, the overall market for Ethernet services in the U.S. isn't huge. In 2001, IDC estimated the market at $151 million and predicted it would grow 36% per year for the next five years.

XO is hoping to tap into the demand for storage services by offering Fibre Channel and ESCON traffic options over Ethernet. Fibre Channel and ESCON support will be limited to protected Ethernet services and will only operate within MANs.

Winning customers with new services might be the least of XO's concerns though.

The company is struggling under a debt burden of more than $5 billion and has been rumored to be on the verge of bankruptcy for months.

In January, XO reached an agreement with billionaire Ted Forstmann, who already holds a 22% stake in the company, and partner Telefonos de Mexico, that would see the two each invest $400 million. In return, each would get a 39% stake in the company and XO's debt holders would restructure the debt.

In March, the company was rumored to be on the verge of filing for Chapter 11 bankrupcty, with the intent of re-emerging as a restructured firm under Forstmann and Telefonos de Mexico. However, a group of investors, led by billionaire Carl Icahn, was fighting the restructuring, arguing that investors were not getting a good deal.

Last week XO issued a statement saying it is still working on restructuring its debt and negotiating with the Icahn-led group.

"I think the financial situation is a concern," Kaplan says. "People are wary of [competitive local exchange carriers] in general, and XO's specific problems won't help them either."

However, Kaplan adds, many companies who rely on CLEC services are large companies that buy services from more established telecom players as well. The CLEC offerings give these companies network redundancy and aren't a real risk, because if the CLEC runs into trouble, the large customers can rely on circuits from their other providers.