In the fast-growing edge router market, the field of equipment choices is narrowing as intense competition, amid a rush of investment, weeds out marginal players and further empowers major vendors. As Ethernet grows more popular in edge networks, smaller vendors with IP/MPLS-based products are especially vulnerable.

Laurel Networks may be the latest casualty but won't be the last. After paying $88 million for the IP multiservice edge router vendor in 2005, ECI Telecom reported just $11 million in revenue from Laurel's products last year — about equal to the operating loss they generated in the fourth quarter alone. Though ECI will continue to sell Laurel's platform, the Israeli vendor announced this month it will dissolve the Laurel division into its optical division, incorporating Laurel's technology into future carrier Ethernet gear.

Ciena, which invested in Laurel in 2003 as part of a reseller agreement that remained intact after the ECI deal, shrugged at the news, dismissing the partnership as irrelevant. “Customer requirements evolved away from Layer 3 edge routing in recent years toward flexible, Ethernet-based switching and transport,” a Ciena spokesman said.

That's only partly true, analysts said. Ciena's biggest customers, steeped in circuit switching, favor Layer 2 over Layer 3 to some degree. And residential video has driven carrier edge spending toward low-cost, point-to-point Layer 2 technology. But Laurel's woes likely resulted more from tough competition than a lack of demand for Layer 3 at the edge, they said.

“It was just too difficult for some of these companies to displace such an important part of the network,” said Ray Mota, Synergy Research's chief analyst. “This is where the dollars are driven.”

After growing 33% last year, the edge routing market could grow 20% this year to about $4.8 billion, Ovum-RHK has said, making it one of the most coveted markets in the industry. About a third of that market is focused on business services, where service level agreements feed demand for more intelligence than Layer 2 provides, Mota said, leaving room for smaller vendors such as Atrica and Telco Systems. Last year, Telco scooped up Metrobility, a small provider of Ethernet and MPLS customer premises gear, for a fraction of its annual revenue.

Alcatel has muscled hard into this market, using a cost-efficient combination of Ethernet aggregation switches and IP routers to more than double its share of the IP/MPLS edge market last year. Taking second place in that market behind Cisco Systems, Alcatel surpassed Juniper Networks, which was criticized last year for not responding to Ethernet's booming popularity. Starting this quarter, Juniper will strike back with a new 480 Gb/s Ethernet router, the MX960. But it will face attacks from both sides. While Cisco leverages the success of its CRS-1 router in the core, Alcatel-Lucent will leverage its sturdy foothold in access networks.

The fate of another IP/MPLS edge router vendor also gets cloudier. Alcatel-Lucent won't comment on its plans for Riverstone Networks, which Lucent acquired for $207 million just last year. Many expect the newly merged vendor to shed that gear, as it competes with Alcatel's. “I'd say they're going to trash about 90% of [the Riverstone portfolio],” Mota said. “It just doesn't make sense. There's too much overlap with the existing Alcatel products.”

This year, Ethernet's momentum at the edge will only grow, said Glen Hunt, Current Analysis principal analyst. “There will be lot of Layer 2 aggregation from pretty much all vendors. Ethernet is definitely the trend.”