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5G-readiness spend and webscale investment drove strong growth in deployment and professional services

5G spend was pulled forward in key markets, supporting deployment and professional services markets

According to Technology Business Research, Inc.’s (TBR) 4Q18 Telecom Infrastructure Services Benchmark, operators in lead markets (U.S., China, Japan and South Korea) as well as a growing list of key operators in other developed markets have accelerated their 5G deployment timetables over the past year, primarily because 5G is a significantly more cost-effective solution to handle rising data traffic in their traditional connectivity businesses but also to remain competitive in their respective markets.

Vendor telecom infrastructure services (TIS) revenue benefited in 2H18 as operators pulled forward their 5G-related investment timelines, with increased spend on deployment and professional services to support 5G-readiness initiatives. The deployment services market is rebounding as operators densify their networks with small cells, bring new macro sites online and deploy fiber for backhaul in anticipation of 5G, particularly in the U.S. 5G is also a growth driver in the professional services market as operators leverage consulting services to develop implementation and business plans and vendors perform network infrastructure integration for the mass deployments of deep fiber, small cells and antennas that 5G requires. These trends supported revenue growth for Nokia, Huawei and Samsung and enabled Ericsson to mitigate the effects of restructuring in its Managed Services and Digital Services businesses.

Graph showing the ten largest TIS suppliers' 4Q18 revenue

Exposure to software-related services and webscales drives growth for select vendors, including Accenture and Ciena

Accenture and Ciena, among others, have strong traction in telecom operator and webscale customer segments. Among webscales, Accenture is providing outsourcing to manage back offices and integrating software. Accenture is also providing business, security and technical consulting to webscales.

Ciena capitalizes on growing demand for next-generation optical from communications service providers (CSPs) and webscales through its focus on optical R&D, which helps the company take share from more diversified vendors. Ciena also gains incremental software-related TIS revenue from its Blue Planet MANO (management and orchestration) and OSS offerings.

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers.

5G-related investment fuels vendor growth; greenfield 5G and Industry 4.0 opportunities emerge

U.S. cable operators and Dish Network are exploring building out their own 5G networks

Rakuten’s mobile broadband network deployment demonstrates that vendors must be aware of new opportunities to deploy 5G networks for customers that do not currently own mobile broadband networks. In November Dish Network selected Ericsson to supply a radio access and core network for Dish’s Narrowband IoT (NB-IoT) network, which is expected to be completed in March 2020. Dish, which has been closely watching Rakuten’s build-out, is also contemplating a nationwide 5G network, on which it could spend up to $10 billion. Cable operators Comcast, Charter and Altice, which are currently mobile virtual network operators (MVNOs) of Tier 1 mobile operators, are contemplating greenfield 5G network builds as well.

Industry 4.0 will drive demand for cellular connectivity within the enterprise, but not for a few years

TBR’s research suggests that Industry 4.0, which includes mass 5G adoption globally, will not ramp up until between 2022 and 2025, at which point business cases will be proven, justifying an increase in market spend on ICT infrastructure. Cellular technologies, namely LTE and 5G, have better uplink and security capabilities, and lower latency than Wi-Fi, all of which are necessary as enterprises begin to use network technology for mission-critical workloads rather than “best effort” communications. Certain vendors, namely Nokia, Huawei and Cisco, are better positioned than others to capitalize on this trend as they sell both directly and indirectly into enterprises, as well as through communication service providers (CSPs). Ericsson, in contrast, plans to go to market almost exclusively through CSPs, which will place it at a disadvantage as many large enterprises will want private networks.

TBR’s 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.

Webscale capex growth will decelerate, though dollar volume will continue to climb, as data center builds slow

According to Technology Business Research, Inc.’s (TBR) 1Q19 Webscale ICT Market Landscape, webscale ICT capex for the Super 7 will grow at an 8.1% CAGR to nearly $58 billion in 2023. Most U.S.- and China-based webscales began pulling forward significant investment in data center and network capacity in 2018, which will lead to moderating — or even declining — capex levels for some U.S.-based players beginning in 2020. China-based webscales will continue to ramp ICT capex through the forecast period, however, to catch up to Western rivals in key areas, particularly public cloud.

Webscale "Super 7" capex forecast

The entrance of Rakuten, a Japan-based e-commerce company, to the mobile industry could be a game changer and provides a glimpse into what a digital service provider will look like. Rakuten’s mobile network will blanket Japan with LTE coverage by year-end. 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. Rakuten’s ultimate intention is to be more than just another mobile network operator in the highly competitive Japan market; it aims to provide a foundational connectivity platform from which to sell a host of digital services. Rakuten’s acknowledgment that it needs its own network could lead to other webscales trying to take a more active ownership and control stance toward having a connectivity platform from which they can leverage their digital businesses. Alphabet, Facebook and Amazon, among other webscales, have all experimented with how to address last-mile connectivity, not only to bridge the digital divide but also to serve as a conduit to give them more control over their destinies without relying on communication service providers (CSPs) to provide the connectivity layer.

The OEM landscape continues to see disruption due in part to the power webscales hold over their suppliers. The vast number of suppliers taking part in Rakuten’s network build demonstrates that webscales hold the power when soliciting vendors for connectivity initiatives. When engaging with webscales, which have few legacy encumbrances, incumbent OEMs are being relegated to commoditized hardware and services. Should the 5G era bring about this trend in the CSP customer segment, incumbents will see more widespread disruption. Vendors must be wary of the webscale procurement model taking hold with their traditional customers.

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.

Telecom vendor revenues trend upward as operators pull forward 5G investment

According to Technology Business Research, Inc.’s (TBR) 2Q18 Telecom Vendor Benchmark, revenue growth improved for the largest vendors as they capitalized on early 5G investment but saw reduced spend in China. Operators, particularly those in the United States, are pulling forward investment in 5G and deploying small cells to densify networks. However, the RAN market will decline in 2018 as operators in China reduce spend significantly following the conclusion of LTE coverage deployments.

TBR believes Ericsson has staked an early lead in 5G, but Nokia (NYSE: NOK) and Huawei can leverage their end-to-end portfolios to regain share. In 4Q17 and 1Q18 Ericsson (Nasdaq: ERIC) aggressively priced its Ericsson Radio System (ERS), which is software-upgradeable to 5G, undercutting competitors to gain market share ahead of commercial 5G build-outs. Nokia and Huawei remain well positioned in 5G due to their ability to leverage end-to-end portfolios as a one-stop shop for network transformation in the 5G era.

ZTE was banned from sourcing components from the U.S. for part of 2Q18, which drove the company to essentially cease operating, leading to drastically lower revenue and a deep operating loss. The company is once again operating, but its reputation was tarnished, particularly in Western markets.

Graph showing 2Q18 revenue, operating margin and year-to-year revenue growth

 

TBR’s 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 and 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.

Data center builds and expansions, along with AI investments, will drive webscale ‘Super 7’ ICT capex to $69B by 2022

HAMPTON, N.H. (Sept. 6, 2018) According to Technology Business Research, Inc.’s (TBR) 3Q18 Webscale ICT Market Landscape, webscale ICT capex for the “Super 7” will grow at a 26.2% CAGR to over $69 billion in 2022 as these top webscales aim to future-proof business-critical infrastructure and map network capacity to data traffic growth, which is expected to increase exponentially through the forecast period. Webscales are investing tens of billions of dollars in new data centers, either to support their core businesses or to increase the scale of their cloud services businesses.

“Capex spend is spiking in 2018 as the Super 7 build new facilities on land acquired in 2017. Amazon’s 30.4% ICT capex growth rate in 2018 is noticeably lower than its peers, which is largely due to its leading presence in the cloud services market,” said Michael Soper, a senior analyst at TBR. “Challengers Microsoft, Alphabet and Alibaba will grow 2018 ICT capex 73.6%, 100.3%, and 101.6%, respectively, year-to-year in a bid to catch up to market leader Amazon Web Services.”

The OEM landscape is being upended as webscales embrace ODMs and open-source technology. A growing number of ODMs aim to take share from incumbent hardware vendors such as Cisco and Dell EMC. Webscales often possess the talent necessary to design their own equipment, then outsource production to an ODM. In these instances, the software is disaggregated from the hardware and the code is written by webscale software engineers. This threat gives webscales negotiating power over incumbents. Cisco is mitigating the threat from ODMs with acquisitions, strong customer relationships and litigation.

TBR’s Webscale ICT Market Landscape tracks the ICT-related initiatives of the seven largest webscale companies in the world, known as the Super 7, which includes Alibaba, Alphabet, Amazon, Baidu, Facebook, Microsoft and Tencent. The report provides a market assessment, deep dives into company strategies and analyzes capex trends, particularly as they pertain to ICT. Vendors are also covered from the perspective of relative opportunities with webscale companies as customers.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.758.1803 or [email protected].

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.

Converging trends enable software and IT services firms to continue to grow despite lower operator capex

HAMPTON, N.H. (June 27, 2018) — According to Technology Business Research, Inc.’s (TBR) 1Q18 Telecom Infrastructure Services Benchmark, post-peak RAN spend drove down telecom infrastructure services (TIS) revenue in local currency terms at some of the largest vendors including Ericsson, Huawei and Nokia. Meanwhile, software- and services-centric firms grew revenue as they capitalized on digitalization trends and/or provided outsourcing and C&SI to operators and webscales alike.

“Operators’ push toward ICT convergence and digitalization sets IT services firms up for continued growth,” said TBR Telecom Senior Analyst Michael Soper. “IT services firms are able to help telecom and webscale customers migrate to new technologies and implement new business models, both of which are in high demand as these companies pursue digital transformation.”

Webscale spend remains robust, but TIS work is confined to certain segments of vendors. Webscales seek out cutting-edge technology and typically contract with the OEM for product-attached services. Companies benefitting from this process include Ciena, which is providing optical equipment to webscales, and Nokia, which has many opportunities to sell into webscales with its end-to-end optical portfolio, premium IP routing and switching products. IT services firms, particularly Accenture, are providing back-office outsourcing and software SI.

Vendors with high exposure to the U.S. market and those that are well-aligned with market trends such as 5G, media convergence and digital transformation will likely increase their share of the TIS market over the next two years, as TBR expects operators in the region to aggressively invest in these areas starting in 2H18.

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, Amdocs, Atos, Capgemini, CGI, China Communications Services, Ciena, Cisco, CommScope, CSG International, Ericsson, Fujitsu, Hewlett Packard Enterprise, Huawei, IBM, Infosys, Juniper Networks, NEC, Nokia, Oracle, Samsung, SAP, Tata Consultancy Services, Tech Mahindra, Wipro and ZTE.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.929.1166 or [email protected].

 

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.

Webscale ICT market to experience a 19.5% CAGR from 2017 to 2022

AWS (Amazon Web Services) is the leading IaaS provider by revenue, but Microsoft Azure and Google Cloud are growing revenue faster than the incumbent due to years of data center investment across geographies. Microsoft is closing the gap quickly and will challenge AWS in the short term, while Google, which was later to the market, is more of a long-term threat. Beyond data centers, webscale companies are making undersea cable investments to support cloud and video traffic growth. Alphabet, Amazon, Facebook and Microsoft will continue to build these networks to carry traffic across oceans and typically partner with each other as they do so. — Senior Analyst Michael Soper, TBR’s 1Q18 Webscale ICT Market Landscape