AT&T and Verizon countered by ramping up their fiber to the node and fiber to the home initiatives, respectively. AT&T went live with its U-Verse product in early 2007 and by the end of October had more than 120,000 TV subscribers; Verizon, which turned up FiOS TV in late 2005, had more than 700,000 TV subscribers by the end of the same reporting period. Although both initiatives are works in progress, their impact in 2007 was mostly positive. In a reversal of fortunes, Wall Street warmed to Verizon’s fiber plans in 2007 and instead penalized MSOs like Comcast for slowing growth and lost video subscribers in the third quarter.

The year also saw Metro Ethernet continue to gain popularity. After building momentum for a decade, in 2007 a broad spectrum of providers—Ethernet pure plays, diversified CLECs, and incumbents—reports booming demand for Ethernet. The consensus view is that the market has reached a tipping point: although legacy TDM revenue will exceed carrier Ethernet for some time to come, new service orders are predominantly for Ethernet. Technologies that enable carriers to provision Ethernet via existing copper facilities to off-net small businesses have further broadened its appeal; likewise, circuit emulation techniques allow customers such as wireless carriers to leverage their significant equipment investments, while offering a ready migration path to metro Ethernet services when needed.

Wireless Game-Changers

The communications space is always a hotbed for innovation that changes how we interact with one another. In 2007, there was no shortage of new product introductions and nascent wireless technologies that have, or had, the potential to alter telecom’s status quo.

Probably the most-hyped communications story in the public’s consciousness this year was the rollout of Apple’s iPhone. Between its January debut and general availability on June 29th, the “iPod cum telephone” stirred both wild-eyed kudos and pessimistic prognostications. By the end of Apple’s fiscal fourth quarter in mid-October, the company reported sales of almost 1.4 million of the devices, which were ostensibly activated on the iPhone’s exclusive network partner, AT&T. Despite questions about sales targets, slow network speed, and its suitability for business users, the iPhone made two lasting impacts on the telecom industry. First, it greatly raised users’ expectations for wireless handsets. Some vendors and competing

What to expect in 2008: The big telcos and cable MSOs go head-to-head on each other’s home turf: telcos offering residential TV service, and MSOs stealing market share in residential voice and pushing into small business telephony. Metro Ethernet sales growth dwarfs incremental or static rates for legacy services, and represents the vanguard of the convergence hype that has been an industry staple for the past few years. More network operators cap legacy services, following the example of Cablevision’s Optimum Lightpath, which in 2005 ceased sales of TDM services in favor of metro Ethernet.