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5G will push CSPs to accelerate and broaden their NFV/SDN-related initiatives

Mainstream adoption of NFV/SDN will coincide with 5G ramp

Leading communication service providers (CSPs) will accelerate and broaden their network transformations en route to deploying 5G and becoming digital service providers (DSPs). Softwarization, virtualization and cloudification are foundational aspects of a DSP’s network. These CSPs, which started their network virtualization journeys in the mid-2010s with virtual machines, are now transitioning to containers and ultimately to a cloud-native, microservices-based architecture.

Additional research:

5G will push CSPs to accelerate and broaden their NFV/SDN-related initiatives

According to TBR’s 1Q19 NFV/SDN Telecom Market Landscape, leading operators will accelerate and broaden their network transformations en route to deploying 5G and becoming digital service providers (DSPs). Softwarization, virtualization and cloudification are foundational aspects of a DSP’s network.

5G is greatly enhanced when using virtualization, especially when enabling and maximizing the benefits of network slicing and achieving better radio access network (RAN) economics. Though most operators intend to initially deploy the non-stand-alone (NSA) standard of 5G, which tethers 5G radio with evolved packet core (EPC), an eventual upgrade to the stand-alone (SA) standard, which tethers 5G radio to a 5G core, will become a reality in the early 2020s.

5G core is inherently virtualized, and communication service providers (CSPs) will be keen to prepare their networks to maximize the benefits of utilizing a fully virtualized network architecture, which includes, but is not limited to, increasing agility, flexibility, visibility and cost efficiency.

In 2019 Rakuten will become the first fully virtualized DSP in the world. Should the company’s approach to network architecture work, it will legitimize and embolden other CSPs to double down on their network transformations and hasten their migration to white-box hardware and cloud-native architectures.

CSPs are under pressure to invest in NFV/SDN to reduce total capex and opex spend as well as introduce new services and stay competitive in the data-driven digital economy, which is increasingly dominated by webscale and over-the-top players. This pressure will prompt more CSPs to spend on NFV/SDN during the forecast period. TBR expects 27.5% of total CSP capex and external opex spend will be allocated to NFV/SDN by the end of 2022.

total global csp nfv/sdn spend

Cost of ‘intelligent connectivity’ must decline significantly for intelligent world to unfold

TBR perspective

Realizing the intelligent world presented by the mobile industry at Mobile World Congress Barcelona 2019 (MWC19) will require a fundamental change in how networks are architected, including a radical reduction in the cost of providing connectivity. It will also require business transformation for companies tied to the old world, namely communications service providers (CSPs) and their incumbent vendors.

It was readily apparent at the event that technology is advancing at a much faster pace than the establishment of business cases that economically justify deployment of the technology. The reality for the mobile industry is that the cost of building, owning and operating networks is too high and networks are too inflexible to support the business realities of the digital era, whereby connectivity is relegated to a commodity service and the value lies in the platforms and applications that run over the network. The industry has known this for years, but changes have been minimal, until maybe now.

The entrance of Rakuten to the mobile industry could be a game changer and provides a glimpse into what a digital service provider will look like. In what could arguably be the most important takeaway from the entire event, Rakuten’s approach to building and operating a network could signify a paradigm shift in the industry. Not only will Rakuten’s network be agile, flexible and dynamic to provide digital services, it will also enable a dramatic reduction in the cost of connectivity.

The theme of MWC19 was “intelligent connectivity” and centered on how 5G, IoT, AI and big data are coming together to enable the intelligent world. Against this backdrop, Rakuten stole the show with the evangelization of its end-to-end virtualized and cloud-native network, which is being deployed across Japan this year. Rakuten’s network provides a glimpse into what the intelligent network of the future will look like.

Technology Business Research, Inc. announces 2Q19 webinar schedule

HAMPTON, N.H. (March 4, 2019) — Technology Business Research, Inc. (TBR) announces the schedule for its 2Q19 webinar series.

April 10        Progress report: State of the NFV/SDN telecom market

April 17        Channel partner ecosystems will evolve to support digital adoption

April 24        Evolutionary IoT: Starting small and controlling costs

May 1           Obstacles and triumphs on the journey to cloud

May 8           Health IT converges around consumerization, value and ROI

May 15        30 minutes, 3 months, 3 years: Evolution of digital transformation

May 22        Bringing the best: Talent and technology in management consulting

June 12        The makings of the telecom edge compute market

June 26        Where will hyperconverged infrastructure fit in the modern data center?

TBR webinars are held typically each Wednesday at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Progress report: State of the NFV/SDN telecom market

Insight’s from TBR’s 1Q19 NFV/SDN Telecom Market Landscape

The NFV/SDN ecosystem continues to advance and leading communication service providers (CSPs) are making progress on their NFV/SDN-related initiatives, but full transformation is still years away as industry challenges remain. Join Telecom Senior Analysts Chris Antlitz and Michael Soper for an in-depth review of TBR’s latest report on the NFV/SDN telecom market landscape.

Don’t miss:

  • Examples of how leading CSPs are progressing on their NFV/SDN-related initiatives
  • How NFV and SDN adoption will impact global CSP capex and opex spend through 2022
  • Why 5G will push CSPs to accelerate and broaden their NFV/SDN-related initiatives
  • Which vendors are outperforming in the NFV/SDN space

 

 

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

CSPs accelerate NFV and SDN investments ahead of the 5G era

Communication service providers (CSPs) are ramping up NFV- and SDN-related investments to realize greater cost savings and efficiencies, according to Technology Business Research Inc.’s (TBR) 2H18 Telecom Software Mediated Networks (NFV/SDN) Customer Adoption Study. This increase in investment will be driven by two underlying factors: CSPs under pressure to realize cost savings as their connectivity businesses remain under pressure and 5G pushing CSPs to pull forward their NFV and SDN road maps.

5G is greatly enhanced when using virtualization, especially when enabling and maximizing the benefits of network slicing and achieving better RAN economics. Though most CSPs intend to initially deploy the non-standalone (NSA) standard of 5G, which tethers 5G radio with EPC, an eventual upgrade to the standalone (SA) standard, which tethers 5G radio to a 5G core, will become a reality in the early 2020s. 5G core is inherently virtualized, and CSPs will be keen to prepare their networks to fully maximize the benefits of utilizing a virtualized network architecture, including, but not limited to, increasing agility, flexibility, visibility and cost efficiency.

 

 

TBR’s Telecom Software Mediated Networks (NFV/SDN) Customer Adoption Studyprovides an in-depth examination of how operators are planning, preparing and executing to succeed in the NFV and SDN market. TBR surveyed 50 people in operations, procurement and IT roles at 25 of the leading Tier 1 telecom service providers worldwide to gain insight into their NFV and SDN adoption plans. The study includes insight into service provider strategy, as well as service providers’ perceptions of supplier positioning and key benefits and obstacles.

5G-readiness spend and migration to new network architectures spur the TIS market to growth in 3Q18

According to Technology Business Research, Inc.’s (TBR) 3Q18 Telecom Infrastructure Services (TIS) Benchmark, the TIS market grew as communication service provider (CSP) investment in areas tied to 5G-readiness increased. CSPs are rearchitecting their networks leveraging NFV, SDN and the cloud as well as implementing new business models, which requires growing spend across a broad range of professional services. Deployment services spend grew slightly, but the market will strengthen as the 5G spend cycle ramps up over the next couple of years, although the spend intensity will be lower than during the LTE cycle. RAN suppliers Nokia (NYSE: NOK), Ericsson, Huawei, ZTE and Samsung will capture incremental TIS market share as they drive high volumes of services attached to their 5G RAN. This is already occurring to some extent as CSPs densify networks as part of their 5G-readiness strategies. Though 5G will require significant hardware spend, the aggregate amount will be lower compared to LTE, which will drive vendors to explore new market areas, such as Industry 4.0.

The managed services market was flat year-to-year in 3Q18 as a decline in outsourcing was offset by growth in the out-tasking market. Generally, vendors are exercising pricing discipline when determining which outsourcing contracts to take on in an effort to improve margins. Ericsson is currently leading the way in this regard as it evaluates 42 contracts for exit or rescoping. Huawei, ZTE and CCS have been less concerned with price and are focused on consolidating the outsourcing market. Other vendors, including those that are historically hardware-centric with little to no footprint in the managed services market, are increasingly playing in out-tasking as they will manage applications deployed in CSP networks. Ciena (NYSE: CIEN) is an example of this trend.

 

 

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers. Suppliers covered include Accenture (NYSE: ACN), Amdocs, Atos, Capgemini, CGI, China Communications Services, Ciena, Cisco (Nasdaq: CSCO), CommScope, CSG International, Ericsson, Fujitsu, Hewlett Packard Enterprise (NYSE: HPE), Huawei, IBM (NYSE: IBM), Infosys (NYSE: INFY), Juniper Networks (NYSE: JNPR), NEC, Nokia (NYSE: NOK), Oracle (NYSE: ORCL), Samsung, SAP (NYSE: SAP), Tata Consultancy Services, Tech Mahindra, Wipro (NYSE: WIT) and ZTE.

U.S. 5G investment supports non-China-based vendors as Huawei and ZTE face increasing headwinds

Nokia and Huawei are well-positioned to win as operators overhaul architectures in the 5G era, but most of the spend to date is on 5G radios, with Ericsson at an advantage due to market perception of its software-upgradeable Ericsson Radio System RAN. The network must ultimately be overhauled to fully realize 5G’s potential, but it will take CSPs many years to evolve their networks end-to-end, and the current focus — and 5G-related capex spend — will be on 5G radios. In the 5G RAN space, TBR believes Ericsson leads in market share. Nokia and Huawei, however, have broad portfolios that enable them to enter 5G accounts from multiple domains.

Graph showing 3Q18 revenue, year-to-year growth and operating margin for vendors in TBR's Telecom Vendor Benchmark

 

 

The Telecom Vendor Benchmark details and compares the initiatives and tracks the revenue and performance of the largest telecom vendors in segments including infrastructure, services and applications as well as in geographies including the Americas, EMEA and APAC. The report includes information on market leaders, vendor positioning, vendor market share, key deals, acquisitions, alliances, go-to-market strategies and personnel developments.

Ericsson’s turnaround is in process, but sustainability of business is in question

TBR perspective

Though Ericsson’s focused strategy has proved to be a viable approach to stabilize the company, return it to profitability and provide incremental organic growth, the key concern will be how sustainable that stability and growth will be over the long term.

Ericsson’s focus on the wireless access domain tethers the company to the whims of that market, which is undergoing significant disruption as 5G and virtualization take hold and as operators increasingly shift capex budgets from connectivity infrastructure to building digital businesses, limiting Ericsson’s growth potential. Though there is room for Ericsson to take market share, particularly from Nokia (NYSE: NOK), Huawei and ZTE by leveraging its software-upgradable Ericsson Radio System (ERS) RAN gear, Ericsson is not immune to adverse business trends impacting the broader RAN market, namely legacy decommissioning, virtualization, openness, cloud and white box.

Ericsson is betting its ERS will offset the impact of these adverse trends and hasten its shift to a more software-centric entity with a more recurring, license-based software model that carries relatively high, sustainable margins, but this shift will take years to unfold and there is significant legacy business at risk of disappearing in the interim.

With the architecture of the network fundamentally changing to be virtualized and cloudified and communication service providers (CSPs) focused on relentless cost efficiency and TCO reduction, Ericsson will have to carefully balance its shift from the old world to the new reality, whereby forklift RAN upgrades become lower scale and targeted, and innovation and value migrate to the software layer. This has significant implications for Ericsson’s hardware and close-to-the-box services businesses, both of which are optimized to operate at high scale for efficiency and profitability.

TBR notes Ericsson and its close rival Nokia are pursing different paths during the 5G era. While Ericsson focuses on its core business of selling RAN and mobile core directly to service providers, Nokia is taking an end-to-end infrastructure approach and is building out a dedicated business unit with a full suite of resources to directly sell to enterprises. Though Industry 4.0, 5G and digital transformation are underlying themes that find commonality between the two vendors, their divergent tracks are noteworthy.

 

 

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 and business unit strategies, with a focus on Networks, Managed Services and North America. Key topic areas included 5G, Internet of Things (IoT), automation and artificial intelligence (AI). Following the main session, analysts could attend three tracks — Network Evolution to 5G, AI and Automated Operations, or 5G and IoT Industry Innovation — and then participate in one-on-one speed meetings. The tone of Ericsson’s 2018 analyst day was upbeat as the company sees early signs that its turnaround plan is yielding results, evidenced by its 3Q18 earnings results in which organic revenue growth returned and margins improved markedly. Ericsson remains committed to its transformational restructuring and focused strategy, which are key pillars of its turnaround plan.

2019 Telecom Predictions: 5G will be an evolution, not a revolution

The first few years of the 5G era will be underwhelming, but the future looks brighter for the telecom industry, especially as Industry 4.0 gains steam

The telecom industry entered a brave new world with the inception of 5G in 2018. Stakeholders industrywide are hoping this newest network generation will provide much needed revenue growth after the prior network generation, 4G, fell short of this goal over the past decade. Stakeholders hope 5G enables Industry 4.0, which will spur revenue generation opportunities for service providers that provide the connectivity layer and value-added services to businesses.

Though TBR agrees Industry 4.0 will ultimately take hold, our research suggests the cycle will start later and take longer to play out than many expect. TBR expects 5G to drive a renaissance in new commercially viable use cases for the network between 2022 and 2025, which will be beneficial in the long run but makes the next few years a continuation of the same challenges the industry has been dealing with, namely a lack of growth prospects and additional margin pressure.

In the interim, communication service providers (CSPs) will focus on cost optimization and will allocate their initial 5G investments to enhancing their traditional connectivity businesses to more cost-effectively support the ever-increasing amount of data traffic coming onto their networks. This cost optimization mindset, coupled with digital transformation ambitions, will lead to an acceleration in spend on NFV/SDN-related initiatives as well as 5G access build-outs, particularly in lead countries.

2019 Predictions

  • CSPs justify initial 5G investments for their cost efficiency attributes
  • CSPs accelerate network transformation endeavors
  • Wireless begins to disrupt the traditional fixed access business model

Register for TBR’s webinar 5G will be an evolution, not a revolution, Feb. 13, 2019.