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IoT use cases enable clients to improve efficiency and customer experience

An increased focus on value-added services is necessary to maximize CSP IoT revenue as connectivity growth is limited by low ARPU connections

IoT revenue is growing steadily but has yet to significantly impact communication service providers’ (CSPs’) overall financial positions. Providing accompanying solutions beyond connectivity is essential for CSPs to maximize IoT revenue.

Additionally, edge compute and 5G standalone will be necessary to support the bulk of next-generation IoT use cases.

TBR’s Telecom IoT Market Landscape, which is global in scope, deep dives into the IoT-related initiatives of stakeholders in the telecom market including telecom operators, cable operators and vendors that supply the telecom market. This telecom-centric report focuses on the commercial IoT endeavors of stakeholders in the telecom market, but also touches on consumer IoT. The research includes key findings, market size, regional summary, technology trends, use cases, verticals, operator and vendor positioning and strategies, and acquisition and alliance strategies and opportunities specific to the telecom industry.

COVID-19: Life between trapezes

Economic activity currently appears more in cessation than recession. It is as if the world is suspended, untethered between two trapezes. As activity resumes, we know inquisitive humans will turn to easy-to-assemble technology to meet the emerging business demands and consumer pain points materializing daily. We will see a flurry of IoT-enabled endpoint applications that will spur new demand. Increased interconnection will pressure networks, with businesses and service providers looking for easy-to-deploy provisioning using traditional compute as the underpinning infrastructure. In short, whatever Horizon 2 and Horizon 3 concepts are being dissected by the strategists will be fast-tracked for trials if they can address the near-term business, social and policy pain points being magnified for us in this once-in-a-century crisis.

In the current climate, strategy really nets down to agile thinking: the ability to make tactical shifts necessary in the heat of the moment to keep operations sage, secure and adaptable. Compute is far more ubiquitous today than in prior economic downturns, and, as such, the problems that can be solved from the practical applications are equally as ubiquitous. Multi-enterprise collaborations built on top of open platforms will create opportunities.

Pervasive compute represents a fundamental difference today compared to the recent economic jolts of the 1987 stock market crash, the dot-com bubble, or Sept. 11. For example, Sept. 11 gave rise to business web conferencing as business travel stalled. Today, with consumerized IT, we are seeing the rise in social conferencing keeping families and friends connected on inexpensive compute devices. We have likewise certainly seen broad shifts in where compute cycles reside since the banking crisis of 2008-2009 when cloud was just beginning to gain market traction. As such, when looking at the implications of COVID-19 on compute, we really have to evaluate an entire suite of compute instances including, but not limited to:

  • Traditional data centers
  • Cloud computing data centers
  • Edge computing or micro data centers
  • Colocation data centers

Traditional centers: Delayed refresh cycles with pockets of modernization opportunities

The short-term outlook for those focused on selling silicon into enterprise data centers is to expect a steep stall out on the refresh cycle rhythm of business. Executives across virtually all industries will put the hammer down on discretionary spend, and a server refresh will be hard-pressed to move forward until the business fundamentals improve to the point where leadership will not want to conserve cash.

However, pockets of opportunity should persist.

  • COVID-19 pressures the traditional “fortress” data center given the need for remote monitoring and management of the data center. Those needing to make the pivot over to greater remote monitoring will be looking for the equipment required to augment that existing infrastructure, whether it is to turn this remote monitoring over to existing staff in work-from-home mode or to take advantage of remote managed services in the event staff illness depletes existing capacity.
  • Networking capacity expansion to accommodate the surge in remote work has been well documented.
  • Colocation (COLO) center compute could well be repatriated back to the data center due primarily to worker safety issues pertaining to entering and exiting COLO centers to perform whatever smart hands work is required.

Cloud computing: The RPMs on the flywheel should spin faster, requiring capacity build-outs

Cloud computing, especially for the exascale cloud providers — Amazon, Azure and Google, or “Amazurgle” — has been well documented for having seen demand surge due to COVID-19. These surges have come from the rapid move to remote work and the uptick in collaboration and video conferencing application usage as well as increases in consumer use of various streaming video platforms these exascalers underpin. This all points to data center expansions and build-outs by the exascalers. This will increase chip demand, but more chips will flow to the ODM market than to the OEM market based on exascaler preference for these lower-cost, built-to-spec systems.

Furthermore, enterprises reluctant to migrate to the cloud will be forced to as part of their business’s continuity planning around the need to keep their IT staffs at home or to shut down data centers where employees exposed to COVID-19 have been working. In this way, COVID-19 will accelerate the prevailing trend of more application migration to cloud. Not all activity moving to cloud under these unique conditions will revert back once the crisis abates. The current economic environment merely accelerates a trend that has been largely anticipated as hybrid multicloud integrations have become more automated and secure.

An offset to this demand surge will be lower transaction volumes in some industries. E-tailers will certainly spin the meter faster, but online travel, hotel bookings and their adjacencies will slow. Ultimately, TBR expects the exascalers’ revenue will grow as a variety of factors, though societally disruptive, positively impact the need to move more compute to the cloud.

The edge will likewise accelerate

Edge compute has more issues influencing demand and activity. There will be the near-term surges to accommodate the need for added remote compute and networking cycles within enterprise. Additionally, we expect to see the rapid assembly of new use reference architectures for a host of point-of-sale configurations as customer and worker safety concerns begin to be addressed with technology-enabled solutions. This demand will not be a one-for-one contribution. Edge deployments need the “killer app” to have enterprises commit to the infrastructure purchase in much the same way that mobile voice put smartphones in people’s hands. As such, some of these rapidly assembled solutions will only be layering an additional app onto an existing edge configuration with new end-point devices being tied into the compute instance.

But in the midterm, TBR expects to see a rapid increase in the reference architecture designs for additional edge services that will pull more software and specialty devices and have a minor, cascading impact on the edge above and beyond the prevailing activities that have been taking place.

The downdraft will be seen in the verticals most seriously impeded by reduced human movement such as the retail and hospitality sectors. Healthcare, on the other hand, will certainly see spikes in new configurations for patient screening within the existing medical infrastructure.

Colocation centers: A still maturing space addressing foot traffic

Few anticipated a human virus as a threat to COLO operations, but recent articles indicate the novel coronavirus can challenge current operating practices. The comings and goings of enterprise employees who may have the virus can lock down COLO centers until sanitation teams can decontaminate the space. Workarounds consist mainly of additional screening of the customer technicians entering the facilities. We anticipate there could be additional remote monitoring done by customers of their COLO instance, potential construction retrofits for better isolation and portioning, and additional services COLO providers can offer to minimize human traffic within the centers.

The need for dedicated cloud interconnections will not abate as more business and streaming activity demands distributed compute across cloud data centers for geographic density. Micro data centers under cellular towers are edge applications that will increase in popularity and potentially take some share of wallet from COLO centers. But, like the cloud and the edge, we expect the COLO segment to weather the current economic climate better than others.

As the COVID-19 tsunami crests, will new opportunities be in the offing?

No one still gainfully employed has navigated a business through a pandemic. No employee with less than 12 years of experience has even worked in an economic downturn let alone a cessation of business activity. Senior leaders will be well served by staying close to their middle management executives to help them stay measured and calm. Companies with sufficient cash to take the long view can use this slowdown to invest in employee training and education on digitally transformative business applications and devices to upskill staff to handle the pent-up business demand when the economy re-engages.

The world as we knew it on New Year’s Day 2020 will not return, but the world that will emerge will be better in the long term. The companies that have been at the forefront of digitally transforming their operations will have better operating methods for the near-term impact; services firms with templated frameworks will have near-term opportunities to help late majority businesses make the leap to the digital world; and from the current tactical firefights will come scalable solutions benefiting society as a whole. As a world, we are suspended between trapeze bars, reaching for the Fourth Industrial Revolution on the horizon.  

The bar is sturdy and well within the grasp of those businesses stewarded by steady hands in these unsteady times.

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CSP spend on edge compute infrastructure will grow at a TBR-projected 54.5% CAGR from 2019 to 2024 to $90B by 2025

Drivers and investments

The primary driver of edge build-outs during the forecast period is telcos’ and cablecos’ network transformations, which entail migrating to a cloudified and virtualized network, and wescales’ edge initiatives to support their cloud businesses and digital lifestyle endeavors.

CSPs will ultimately migrate to a vRAN architecture, which is a key aspect of the new networks they are evolving toward. The vRAN market will ramp up in the early 2020s as leading operators push the industry forward.

Telcos will spend the most, collectively, on edge infrastructure each year through 2022, at which time there will be an inflection point in 2023 whereby webscales become the largest investors in edge infrastructure starting in 2024.

CSP spend on edge compute infrastructure 2019 to 2024

For additional information, read our recent special report on edge compute and contact an account executive about TBR’s Telecom Edge Compute Market Forecast.

Two Back, Three Forward: Growth in the Western Hemisphere

In our new weekly blog series Two Back, Three Forward, we look at two numbers in TBR reports from the prior week as well as three numbers from our upcoming reports, highlighting the analysis TBR provides and the vast amount of data — the numbers — we’re working with every day. It’s all about the data and what that data means to you.

Two Back

11, vendors profiled in TBR’s 1Q20 Enterprise Edge Compute Market Landscape. A newly launched product from TBR looks at the far edge of the edge compute spectrum, which is “also known as the local edge, new edge, network edge, mobile edge, multiaccess edge or distributed new edge.” Within the market landscape, senior analysts Nicole Catchpole and Stephanie Long examine recent developments and provide a SWOT assessment on vendors as diverse as Atos, Equinix and Microsoft. 

5, clients TBR visited with last week in New York City. In a bit of a whirlwind tour continuing the spring travel season, TBR shared parts of our Digital Transformation Insights portfolio, our soon-to-be-released digital delivery platform, and six big ideas challenging the consulting and IT services space in 2020. Surprisingly, no clients challenged TBR’s assertion that the term digital is dead, while the most lively (and heated) debate centered on the unchanging nature of the largest strategy consulting pure play firms.  

Three Forward

21.6%, ManTech’s year-to-year revenue growth in 4Q19: As detailed in our upcoming full report on the company, ManTech grew rapidly through a couple of key acquisitions, namely Kforce Government Solutions and H2M Group. The latter, which brought along $30 million in revenue and around 180 professionals, follows ManTech’s typical acquisition strategy, which focuses on new capabilities and/or agency access that the company has been unwilling or unable to gain organically. As the full report will note in a scenario on acquisitions, “H2M Group has an extremely deep relationship with the National Geospatial-Intelligence Agency and strong expertise in the geospatial industry as well as in intelligence collection and analysis and business operations support.”

65%, of customers in Latin America/South America have stayed away from adopting IoT solutions, according to IT services vendor Logicalis: Senior Analyst Boz Hristov traveled to Brazil to meet with Logicalis’ local and global leadership and hear their perspectives on the local market for both traditional IT services and emerging technologies such as cloud and IoT. Analyzing Logicalis’ solid credentials, well-established client base and willingness to take a riskier approach to outcomes-based pricing, TBR offers expectations around the company’s consulting, applications services and acquisitions in the special report available this week.

$389 million, Atos’ 4Q19 revenue within Big Data & Cybersecurity: The company’s leading service line for revenue growth saw contract wins across multiple geographies and industries, bolstered by a strategic decision to leverage ecosystem partners and expand its own capabilities simultaneously. In a scenario discussion in the upcoming full report, Senior Analyst Elitsa Bakalova explains how Atos has made substantial headway with cybersecurity offerings outside its core European market. By folding new offerings into its established and well-regarded Prescriptive Security Operations Centers, the company provides clients, in TBR’s assessment, “visibility, control and compliance.”

Insights from TBR’s inaugural Enterprise Edge Compute Market Landscape

The edge computing market spans a spectrum of use cases that meet various customer needs, including sensitivity for latency and analytics. According to TBR’s 1Q20 Enterprise Edge Compute Market Landscape, while the edge is not new, its use for low-latency-dependent applications and close-to-the-data computing has increased and will continue to do so to support connected devices, emerging workloads such as IoT, and faster time-to-insight. For example, in-store robots can interact with customers to create a customized shopping experience on the floor and use data around purchases to help restock inventory.

TBR predicts a rapid increase in enterprise edge spend through 2024. The dynamics within the webscale space  include a desire by managed service providers to run their offerings on bare metal hardware and ODMs with the ability to provide this bare metal hardware at lower price points than OEM peers. These dynamics will be a key driver behind the upswing in enterprise edge revenue through 2024 as webscales capture opportunities typically fulfilled by OEMs.

For additional information, read our special report Edge computing is a cross-industry revolution that will reshape every industry and contact an account executive about TBR’s Enterprise Edge Compute Market Landscape.

TBR projects CSP spend on edge compute infrastructure will grow at a 54.5% CAGR to $90B by 2025

TBR estimates over 1.2 million network sites and cell sites will become mini data center (edge) locations globally by 2025, up from nearly 9,000 sites globally at the end of 2019. The primary driver of edge build-outs from 2019 to 2024 is telcos’ and cablecos’ network transformations, which entail migrating to a cloudified and virtualized network, and webscales’ edge initiatives to support their cloud businesses and digital lifestyle endeavors. In this new architecture, network functions will be virtualized and housed in network functions virtualization infrastructure, which is essentially a data center. Network sites, such as central offices, have been the primary edge compute locations to date, with cell site builds expected to ramp up significantly in 2021 and become the primary locations for the CSP edge by 2025.

Total CSP Edge Compute Spend 2019 to 2024
SOURCE: TBR ESTIMATES

Most CSP edge sites will be located in the U.S. and China by 2025

TBR estimates over two-thirds of global far edge sites that are owned or leased by CSPs will be located in the U.S. and China by 2025. This heavy concentration of sites will be due, in part, to webscales pushing the ecosystem into the edge to realize their distributed computing initiatives, which encompass migrating mission-critical and latency-sensitive enterprise workloads into their clouds as well as enabling and supporting their digital lifestyle initiatives.

Telecom and cable operators in these two countries will also be active participants in building out their own edge infrastructure, but this will mostly be to transform their networks into automated, virtualized and cloudified systems.

CSPs in other countries will also build out edge compute infrastructure over the next five years, but the scale will be dwarfed by what stakeholders in the U.S. and China intend to pursue.

TBR’s Telecom Edge Compute Market Forecast, which is global in scope, details edge compute spending trends among communication service providers (CSPs), such as telecom operators, cable operators and webscales. This research includes current-year market sizing and a five-year forecast by multiple edge compute market segments and geographies, with the most recent publication covering 2019 to 2024.

The CSP ecosystem is at the early stages of a major edge build-out

Spend on edge infrastructure will ramp up significantly in 2021

Drivers of this ramp up will include data traffic optimization, new use cases of the network, IoT proliferation, and data privacy and data sovereignty requirements, among others.

For additional information, read our recent special report TBR projects CSP spend on edge compute infrastructure will exceed $82B by 2025 and contact an account executive about TBR’s Edge Compute portfolio.

The emerging and evolving landscape of enterprise edge computing

TBR launches its inaugural Enterprise Edge Compute Market Landscape this week. The report profiles key vendors playing in the enterprise edge compute market as well as trends in alliance and acquisition activity, emerging market opportunities, and use cases and business cases for edge. As a complement to TBR’s Telecom Edge Compute Market Landscape, this new reportalso details high-level market forecast estimates for the significant enterprise edge compute opportunity.

On Wednesday Senior Analysts Stephanie Long and Nicole Catchpole will host an exclusive preview of TBR’s findings in its Enterprise Edge Computing Market Landscape. In this webinar, the pair will analyze the enterprise edge market, which is providing an emerging and rapidly evolving opportunity for existing data center and cloud players as well as entrants across a broad spectrum of industries. Register today for “The emerging and evolving landscape of enterprise edge computing,” and visit our Webinar Portal to view all of TBR’s previously aired webinars.

Additional assessments publishing this week from our analyst teams

“Further developing NTT DATA’s emerging technology portfolio improves the company’s market position and enables it to seek cross-selling opportunities to broaden engagements and deepen client relationships, as it leverages previous acquisitions and ongoing internal investments to support efforts to expand client wallet share.” Senior Analyst Kevin Collupy

“DXC Technology is utilizing both organic and inorganic investments to expand its next-generation IT services capabilities, aligning its portfolio with client demand while incrementally strengthening its market perception.” Collupy

Cognizant’s focus on evolving from its traditional roots to a digital transformation leader resulted in multiple acquisitions and a flurry of restructuring efforts in 2019, led by the company’s Digital Transformation Office (DTO) that was formed in 2Q19. Recently, the DTO announced a restructured sales and commercial model as part of Cognizant’s 2020 Fit For Growth Plan, including new incentive plans for sales members to prioritize key solutions and services as well as the formation of new customer segments .TBR believes Cognizant’s success during 2020 will be tied directly to the efforts of its DTO, and TBR will be monitoring further initiatives being set forth by the group.” Analyst Kelly Lesiczka

T-Mobile ended 2019 on a high note, surpassing postpaid net addition, adjusted EBITDA and free cash flow expectations. This momentum will continue in 2020 as T-Mobile attracts customers via new Un-carrier initiatives, while improved network coverage realized by 600MHz spectrum deployment will help retain customers. The widespread 5G coverage provided by 600MHz spectrum will also help T-Mobile gain a time-to-market advantage during the 5G era’s infancy.” Analyst Steve Vachon

TBR projects CSP spend on edge compute infrastructure will exceed $82B by 2025

TBR estimates over 1.2 million network sites and cell sites will become mini data center (edge) locations globally by 2025, up from nearly 9,000 sites globally at the end of 2019. The primary driver of edge build-outs during the forecast period is CSPs’ network transformations, which entail migrating to a cloudified and virtualized network, and webscales’ edge initiatives to support their cloud businesses and digital lifestyle endeavors. In this new architecture, network functions will be virtualized and housed in NFVI, which is essentially a data center. Network sites, such as central offices, have been the primary edge compute location to date, with cell site builds expected to ramp up significantly in 2021 and become the primary location for the CSP edge by 2025.

Webscales and disruptive startups are positioning early to capture new value created by edge computing, threatening to limit telco and cableco opportunity

In 2H19 several of the largest telcos in the world, namely AT&T, Verizon, Vodafone, SK Telecom, KDDI and Telecom Italia, established strategic partnerships with key webscales pertaining to edge computing. In each of these situations, the webscale provides the extension of its public cloud via a physical compute stack, which is being housed in the telco’s site at an edge location and integrated with the telco’s network. TBR views these partnerships as necessary for both parties but is wary that telcos will be largely confined to providing connectivity while webscales get point position at the edge to accrue most of the new value created from new use cases of the cloudified network.

Telcos and cablecos could generate significant edge-related revenue by opening their network sites to colocation opportunities. Existing network sites could be repurposed to house a telco’s or cableco’s equipment and the edge stacks of other companies, which would pay rent to the site owner. CenturyLink and Frontier are both all-in on colocating their existing sites, and TBR expects more telcos and cablecos to follow in their footsteps over time.

TBR’s Telecom Edge Compute Market Landscape, which is global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market including telecom operators, cable operators, and vendors that supply the telecom market. The report also covers leading webscales’ edge computing-related initiatives. The research includes key findings, market size, regional summary, technology trends, use cases, business models, operator and vendor positioning and strategies, and acquisitions and alliances.

Ericsson’s focused strategy and strong 5G position yield results

TBR perspective

Ericsson’s recovery continues into its third year, evidenced by revenue growth and expanding margins, trends that TBR expects to continue in 2020. A strong 5G position with respect to both RAN and mobile core is a significant driver of this improvement as Ericsson’s early technology bets and increased investment in Networks unit R&D are spurring CSP adoption of Ericsson’s competitive 5G portfolio. Ericsson has notched high-profile wins in 5G and grown its market share at Huawei’s and Nokia’s (NYSE: NOK) expense thanks to ERS, which offers an attractive total cost of ownership and a powerful baseband unit. As restructuring progresses, Ericsson will shift from an emphasis on cost reduction and efficiency to a disciplined growth mindset, evidenced by the recent acquisition of Kathrein’s antenna business and an effort to poach LTE customers from rivals for 5G upgrades. With China deploying 5G en masse in 2020 and the next wave of adopters expected to roll out through the early 2020s, Ericsson has the ability to wring a few more years of growth and market share gains from this cycle.

TBR views Ericsson’s turnaround as a success, but multiple headwinds will take shape over the next few years, such as vRAN; the rise of disruptive startups like Altiostar, Mavenir and Parallel Wireless; and uneven CSP spending. TBR believes Ericsson has baked 5G market share gains in China into its 2020 guidance. These gains are likely to come at Nokia’s expense.

Long term, Ericsson is hoping that emerging businesses including IoT Accelerator, Edge Gravity and eModo scale up. The company needs to succeed in an area outside of RAN and core to maintain share, but Ericsson is not currently preparing to expand its addressable market in terms of enterprise verticals.

Ericsson (Nasdaq: ERIC) hosted its annual Industry Analyst Forum in Boston, bringing along a range of executives to provide an update on the company’s corporate strategy, which includes continued restructuring, particularly within Digital Services, as well as infusing AI and automation across key product areas and selective expansion in emerging technology areas. 5G, however, was the dominant topic due to Ericsson’s market share gains spurred by the Ericsson Radio System (ERS), which is optimized to meet the cost-conscious needs of communication service providers (CSPs). Similar to last year, the tone of Ericsson’s 2019 analyst day was upbeat as the company continues to execute its focused strategy — now in its third year — which is driving improvement in its financial metrics. Following the main session, analysts could attend three tracks — Building the Network Platform, Automation in 5G Operations, or New Business Opportunities for Service Providers (i.e., IoT, private cellular networks and fixed wireless access [FWA]) — and then participate in one-on-one speed meetings.