IHS-Markit Forecast: Carrier NFV at $37B in 2021 for a CAGR of 30% from 2016-2021

by Michael Howard of IHS-Markit (co-founder and lead analyst at Infonetics)

Network Function Virtualization (NFV) MANO (management and network orchestration) and VNF (virtual network function) software revenue was $3.5B in 2016 and is expected to reach $5.9B for 2017, according to the NFV Hardware, Software, and Services biannual market tracker from IHS Markit.

NFV revenue is not all new: it includes displaced revenue and newly identified parts of existing market segments. In 2021, 49% of the NFV revenue will be new revenue from software and outsourced services, and 8% will be displaced revenue spent on NFVI server/storage/switch hardware purchased instead of purpose-built network appliances. The remaining 43% represent spend on VNF software.

“Operators around the world are planning or extending their NFV environments to customer sites on CPE (customer premises equipment), which we are calling uCPE (universal CPE). We expect operators will spend $11M on physical “uCPE” hardware in 2017, growing to $448M in 2021,” stated Michael Howard, Executive Director Research and Analysis for Carrier Networks at IHS Markit.

“In our 5th annual global carrier surveys on SDN and NFV, 82% of respondents indicated they are deploying or plan to execute VNFs on uCPE located at customer sites (with 97% in COs and 85% in DCs). Because this is such a large part of operator plans and products available now, we have sized and forecast the uCPE market,” Michael Howard added.

Above illustration courtesy of IHS-Markit

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Editor’s Note:  NFV and MANO Backgrounder:

nfv infrastructure and vim nfv framewrok

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NFV Reference Architecture showing NFV Orcestrator and VNF Manager

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Above illustration extracted from the ETSI NFV MANO Specification

Recently, there’s been more innovation around the MANO portion of the NFV infrastructure and a recognition that MANO might need more development as a model given the gap between the MANO layer in NFV and the OSS/BSS (operations support systems/business support systems) portion of network operator  businesses that handle the core orchestration and billing functions as shown above.

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More NFV Market Highlights (IHS-Markit):

·         Revenue to vendors and systems integrators for outsourced services for NFV projects will grow to $16.6B in 2021 with a 2016-2021 CAGR of 23%.

·         NFV software (NFV MANO and VNFs) revenue will grow to $15.5B in 2021 with a 2016-2021 CAGR of 36%.

·         NFV hardware (NFVI server, storage, and switches) revenue will grow from $696M in 2016 to $3.1B in 2021 with a 2016-2021 CAGR of 35%.

·         Service providers will invest $2B in hardware and software for the enterprise vCPE use case in 2021, and $293M for the consumer vCPE use case.

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NFV Hardware, Software and Services Report Synopsis:

The IHS Markit NFV Hardware, Software, and Services market tracker provides biannual worldwide and regional market size, forecasts through 2021, analysis and trends for:

(1) NFV hardware [servers, switches, storage and uCPE],

(2) software: NFV MANO, Virtual Network Functions (VNF) [SD-WAN, mobile core & EPC, PCRF & DPI, security, IMS, SBC & DCS, video CDN, vRouters, and other VNFs],

(3) outsourced services for NFV projects, plus NFV use case spending [consumer vCPE and enterprise vCPE].

Vendors tracked include Amdocs, ADVA, Ciena, Cisco, ClearPath, Ericsson, Fujitsu, HPE, Huawei, Juniper Networks, Metaswitch Networks, Nakina Systems, Nokia, Nuage Networks, NEC, NetCracker, Oracle, ZTE, and others.

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Editor’s Note:

I strongly respect Mr. Howard’s work ethic and primary market research findings.  While not having read this latest report, I’m sure it’s excellent.  However, I’m still much more pessimistic on the NFV market due to the lack of standards for exposed interfaces/APIs and backward compatibility (especially hybrid network management) with the installed base of non NFV equipment/boxes.

ABI Research on NFV Market:

ABI Research forecasts that North America will lead the NFV market, accumulating $13 billion in NFV-related investments during 2022, while Europe will experience the highest growth rate at an estimated 53% CAGR between 2017 and 2022. Early adopters claim several benefits to NFV-enabled systems, which include reductions in network CAPEX & OPEX, service agility, and reduced deployment times for new network elements.

“In 2015 and 2016, the market experienced some early successes but mostly reconsiderations and failures with NFV,” says Neha Pachade, Senior Analyst at ABI Research. “Early adopters conducted proof of concept testing and NFV-integrated system demonstrations with the aim to understand the true impact of NFV in the technical, operational, and cultural domains. Our forecasts indicate that NFV will become a sizeable opportunity for vendors, although it is not yet clear whether it will cannibalize existing hardware-based product lines or create new market use cases.”

ABI Research estimates that total NFV market revenues will reach $38 billion in 2022. Hardware spend—including servers, storage devices, and switches—will reduce with time, while software and services will have higher growth rates of 55% and 50%, respectively. Although the market is evolving and technical expertise is starting to mature, the standardization and multi-vendor involvement challenges will remain stagnant for the next couple of years. Software and services vendors will have opportunities to identify NFV use-cases in enterprise verticals and use these to offer end-to-end integrated systems.

“Early contracts and market trends illustrate the biggest winners are likely to be the established vendors, including Ericsson, Huawei, and Nokia, as well as specialists like Amdocs and Netcracker, with systems integration becoming more important each day,” concludes Pachade. “Several vendors also place heavy and risky bets on open source software, which may increase business opportunities but may also create difficult choices for them in the future, particularly if telco interest in specific open source projects fizzles out. For the time being, NFV is mostly considered as a cost-cutting exercise, since new revenue opportunities require a transformation in a much broader context, which is more likely to be driven by 5G, after 2020.”

These findings are from ABI Research’s Network Functions Virtualization Tracker and Forecasts report.

Windstream Joins ONAP & Open Source Telco Movement Led by AT&T/ China

Windstream Communications has become a corporate member of the Open Network Automation Platform (ONAP) Linux Foundation project, joining an open-source technology initiative for the first time.

ONAP was formed through the merger of open source ECOMP (contributed by AT&T) and Open Orchestrator Project (OPEN-O), two of the largest open source networking initiatives.  It was the big hit of the 2017 Open Networking Summit as we reported in this blog post.

The ONAP Project is focused on creating a harmonized and comprehensive framework for real-time, policy-driven software automation of virtual network functions. ONAP includes participation by prominent networking suppliers and industry-leading service providers from around the world. It’s primary objective is to enable software, network, IT, and cloud providers and developers to rapidly create new services which can be monetized.

The ONAP draft architectural principles, presented at their May 2017 meeting at AT&T Bell Labs in NJ, can be read here.

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“Combined with our rapid advances in SDN, Windstream’s participation in ONAP increases the value of our network for all of our customers, as we move to virtualization and cloud-based technologies that offer affordable and efficient next-generation services,” said Art Nichols, vice president of network architecture and technology for Windstream.

“For example, not only does our SDNow solution offer automation and accelerated service delivery, but it forges the path that will allow us to deliver flexible, on-demand services across our multi-vendor network ecosystem.”

“Traditionally, we have always worked with engineering groups and maybe a little bit with IT on the back side” in planning this kind of transition, Windstream’s Jeff Brown told Light Reading in an interview.

“In this new world, you are blending IT and engineering and a lot of crossover resources. So, from the IT perspective, [ONAP] was called out as a group that was taking the leadership role as far as developing open standard work with other companies we have similarities with and with some of our vendors as well.”

Windstream has been informally monitoring multiple open source efforts and supporting the concept of open source for some time now, Brown told Light Reading.  The move to more actively engage in orchestration through ONAP was driven by the growing influence of Windstream’s IT department in its transition to software-defined networking, he added.

“In any type of industry forum, whether standards-based or not, you have to make the determination of what kind of resources you can dedicate to it,” Brown notes. Having just come out of meetings around MEF and proofs-of-concept for its 2017 event, he says the same discussions come up there. “We don’t have groups allocated that can do that type of thing and work with vendors,” he says.

Windstream is the third North American service provider to join, after AT&T and Bell Canada Enterprises. ONAP now has 17 platinum and 22 silver members. The other service providers signed onto this Linux Foundation project include China Mobile, China Telecom, Orange, China Unicom and PCCW.
Carol Wilson of Light Reading opined that Windstream is likely to start off with ONAP as more of an observer than a leader. “Although that may change over time,” Brown said.  The next ONAP meeting is being held in China, and Brown is unsure whether the company will send a representative as a result.
“That [long distance travel] would be highly unusual for us.” Brown added that joining ONAP and getting more involved over time is nonetheless important because of the need to speed up the process of getting to industry consensus, moving faster than the traditional telecom standards process.
“It’s no doubt that waiting for standards to develop in the traditional telecom community can be quite painstaking….We have seen other greenfield entrants, hyperscale companies, come in with an open source approach with no standards and make a huge commercial presence, impacting markets in a big way very quickly.  That is the kind of agility and nimbleness we need to thrive in the industry.”
In the long run, open source “is just a means to an end to be able to provide our solutions,” he told Light Reading, enabling the telecom industry to coalesce “around things similar to what we are seeing [with] all the web-scale providers.”
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