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Software-controlled networking: worldwide forecast 20152019

RESEARCH FORECAST REPORT

SOFTWARE-CONTROLLED NETWORKING: WORLDWIDE


FORECAST 20152019
GLEN RAGOONANAN and GORKEM YIGIT

analysysmason.com

Analysys Mason Limited 2015

Software-controlled networking: worldwide forecast 20152019

About this report


This report provides a 5-year forecast of spending split into:

KEY QUESTIONS ANSWER E D IN THIS R EPOR T

three technology types: cloud computing by communications


service providers (CSPs); network function virtualisation (NFV)
by CSPs; and software-defined networking (SDN) by CSPs and
data centre providers (DCPs) (the forecast excludes non-CSP
cloud computing and non-CSP and DCP SDN spending)

What are the drivers and inhibitors of SCN solution and service growth?
What is the business environment that is creating the need for SCNs?
What are the key changes in the SCN markets compared to our previous
forecast?
Which segments and regions are growing the fastest and why?

three revenue types: hardware, software and services, with


further sub-segmentation (see the Market definition section for
market segment definitions)

What are the sub-segments of the software revenue opportunity, and


which are likely to offer the best growth?
Which NFV OSS software segments are likely to be the most attractive to
vendors?

four geographical regions: AsiaPacific (APAC); Europe, the


Middle East and Africa (EMEA); Latin America (LATAM) and
North America (NA).

WHO NEEDS TO R EAD THIS R EPOR T

The report also provides:

SCN vendor product managers and business development managers


who need an independent third-party view of market opportunity size and
timing.

an analysis of the trends, drivers and inhibitors for the adoption


of these technologies

CSP planning and operations staff eager to gauge the progress of the
SCN market by spending type, region, and technology for comparison to
their own situation.

recommendations for CSPs and suppliers (vendors and systems


integrators).

Data on CSPs internal spending is excluded from this report.


The analysis is based on Analysys Masons in-depth SCN research,
as well as interviews with at least 40 CSPs and vendors active in
the SCN markets.

Analysys Mason Limited 2015

Software-controlled networking: worldwide forecast 20152019

CONTENTS
EXECUTIVE SUMMARY
RECOMMENDATIONS
FORECAST
MARKET DRIVERS AND INHIBITORS
BUSINESS ENVIRONMENT
MARKET DEFINITION
ABOUT THE AUTHORS AND ANALYSYS MASON

Analysys Mason Limited 2015

Software-controlled networking: worldwide forecast 20152019

Dashboard: Software-controlled networking worldwide forecast


Figure 2: Software-controlled networking revenue 2014 and CAGR 20142019, by region

KEY MARKET TRENDS FOR 20152019

NA

NFV will be the markets main growth driver. Our updated 2018 forecast
is up 81% over our previous estimate because increased NFV activity
worldwide drove our 2014 baseline 110% above our previous estimate.

EMEA

REVENUE USD2.3 BILLION

REVENUE USD2.1 BILLION

CAGR

CAGR

23.2%

24.4%

SDN continues to grow strongly. CSP SDN is likely to outpace enterprise


SDN as CSPs implement service-led VPN SDN deployments.
Cloud computing will grow faster in the CSP market than in the DCP
market as CSPs try to catch up and compete with DCP cloud offerings.
LATAM

20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0

REVENUE USD0.3 BILLION


CAGR

18832
15244
11808
9483
5962

2014

7349

2015

2016

2017

2018

22.5%

CAGR COMPARISON WITH


WORLDWIDE AVERAGE
LOW
HIGH

APAC
REVENUE USD1.3 BILLION
CAGR

32.5%

Figure 3: Software-controlled networking revenue 2014 and CAGR 20142019, by


sub-segment

MARKET GROWTH: CAGR

Revenue (USD million)

Figure 1: Software-controlled networking revenue, worldwide, 20142019

NETWORK
FUNCTION
VIRTUALISATION
(NFV)

70%
60%
50%
40%
30%
20%
10%
0%

SOFTWAREDEFINED
NETWORKING
(SDN)

CLOUD
COMPUTING

2019

SCN CAGR 26%

2000
4000
MARKET SIZE: Revenue (USD million)

6000

Source: Analysys Mason

Analysys Mason Limited 2015

Software-controlled networking: worldwide forecast 20152019

NFV technology is driving the SCN market and pulling through CSP SDN
spend, while cloud computing spend remains steady
Figure 2: Key market drivers and inhibitors that have led to a change in this SCN forecast
compared with the previous SCN forecast (20142019)

CSPs are balancing tactical and strategic business goals as


they target increasing revenue with digital services using agile,
scalable, flexible SCN-powered cloud platforms.

2014 forecast

Since we published our 2014 forecast, the number of NFV proofsof-concept (PoC) trials and commercial deployments has
increased significantly and outpaced our expectations. We now
expect NFV spending to overtake SDN this year. Also, CSPs in NA
will not spend significantly more than those in APAC and EMEA.
These main changes in the forecast were influenced by the
following.

CSP focus was


more tactical
Strong drivers
1.

COST OPTIMISATION

Worldwide NFV and CSP SDN commercial service deployments,


while traditional SDN is facing commoditisation.

2.

SERVICE AGILITY

3.

NEW TECHNOLOGY LAUNCH

Tier 1 CSPs are augmenting tactical (13-year) cost reduction


business cases with strategic (5-year) digital revenue-based
business cases to justify large SCN infrastructure upgrades.

4.

NEW REVENUE

Key spending trends

Open-source initiatives are accelerating, driving commercial offthe-shelf (COTS) and in-house development for NFV/SDN and
rapidly decreasing the inhibiting effects of product immaturity.
This also increased the software market forecast.
APAC will start slowly because of Chinas present
macroeconomic instability, but growth will accelerate.

Balancing tactical
and strategic needs

+ +

Strong drivers

1.

NEW DIGITAL SERVICES


REVENUE

2.

SERVICE AGILITY

3.

COST OPTIMISATION

4.

OPEN-SOURCE BASED COTS

Main spending changes

SDN WOULD OUTPACE NFV

NFV WILL OUTPACE SDN

NA WOULD OUTPACE ALL


REGIONS

EMEA WILL MEET NA


APAC WILL HAVE A LATE START
BUT GROWTH WILL ACCELERATE
Source: Analysys Mason

The cloud computing market trends have been stable.

Analysys Mason Limited 2015

This forecast

Software-controlled networking: worldwide forecast 20152019

We have further refined our SCN forecast to provide a more granular


segmentation, which suppliers can use to aid their business planning1
Figure 3: Software-controlled networking markets, opportunities and sub-segments

Analysys Mason has split SCN hardware, software and support


services into sub segments we will track as they undergo rapid
changes over the next 5 years.

SCN markets

As a result, we have provided the following additional levels of


segmentation as part of this 5-year forecast of SCN spending
worldwide for each SCN market.
Hardware segmented by three hardware types: server, storage
and network. The data is included in the associated Excel data
annex, and referenced in this report.

Cloud computing
NFV
SDN

Software segmented by three software types, worldwide:


virtualisation, components (such as applications and VNFs) and
OSS/management. This is largely detailed in the associated
data annex.
OSS/management is further split into: service fulfilment, service
assurance and other management software, which maps into our
overall telecoms software taxonomy.

SCN software
sub-segments

Hardware

Server
Storage
Networking

Software

Virtualisation
Components
OSS/management

Services

Co-existence
Integration
Transformation

SCN software
sub-segments

NFV OSS

Service
orchestration
Service assurance

OSS/management

Service assurance
Other
management

= excluded from this report

For detailed definitions of all markets sized in this report and its associated data annex, see the
Market definition section.

Analysys Mason Limited 2015

Market
sub-segments

Service fulfilment

For NFV only, we have mapped service fulfilment to service


orchestration, and other management software into network
orchestration and VIM and NFV network management tools, which
will be covered in our Network Orchestration research programme
(formerly Infrastructure Solutions). This is expanded in this report,
as well as the data annex.
1

Market
opportunities

Network
orchestration
NFV network
management
Source: Analysys Mason

Software-controlled networking: worldwide forecast 20152019

NFV spending in 2014 was more than twice what we had expected this
momentum will continue and NFV spend will outpace SDN
Worldwide spending in the cloud computing, NFV and
SDN markets will grow from USD6 billion in 2014 to
USD19 billion in 2019, at a CAGR of 26%.

Figure 4: Software-controlled networking revenue by sub-segment, worldwide, 20142019

9000
8000

CSPs will invest in cloud computing at a higher rate than


DCPs as CSPs try to catch up and compete. This
investment will be directly related to new revenue for IaaS,
PaaS and SaaS and private cloud modernisation. Because
cloud computing is a mature market, it will have the
lowest growth of all SCN markets.

Enterprise SDN (DCP and CSP data centre) spending


remains strong. However, CSP SDN investments in the
WAN are growing as the commercial benefits of selfservice enterprise bandwidth on demand, VPN and interdata centre connectivity become clear.

Analysys Mason Limited 2015

Revenue (USD million)

NFV activity and spend exceeded our expectation in 2014;


actual spending was estimated at USD572 million, 110%
over our forecast of USD273 million. We expect that this
momentum will continue with NFV hardware refresh, data
centre modernisation activities and commercial NFV
deployments, leading this SCN market to have the highest
growth rate. NFV-related activity exceeded that of SDN in
2014 and will continue to do so during the forecast
period. This will lead NFV spending to exceed that of SDN
as early as 2015.

7000

NFV and SDN


drivers begin to
outweigh the
inhibitors

6000

5000
4000
3000
2000
1000
0
2014

2015

2016

2017

2018

2019

CAGR

4773

5261

6048

6625

7829

8483

12.2%

Network function
virtualisation (NFV)

572

1096

1909

2990

4407

6383

62.0%

Software-defined networking
(SDN)

617

993

1526

2193

3008

3965

45.1%

Cloud computing

Source: Analysys Mason

Software-controlled networking: worldwide forecast 20152019

NA will lead the spending particularly in the cloud computing and SDN
markets while EMEA follows closely with mainly NFV spend
Figure 5: Software-controlled networking revenue by region, worldwide, 20142019

7000
6000
Revenue (USD million)

Tier 1 CSPs, such as China Mobile, China Telecom, KT,


NTT Docomo, SK Telecom and Telstra, will continue to
lead spending in APAC. Chinas recent economic slow
down will negatively affect the region and wider market
over the next 23 years, but existing investment
commitments will sustain growth in the region. Most CSPs
in the region will focus on SCN technologies as part of
ongoing cost-reduction strategies.
Tier 1 CSPs in Western Europe, such as BT, Deutsche
Telekom, Orange, Telefnica and Vodafone, are leading
investments in the region. Of all the regions, EMEA will
have the largest NFV revenue for the forecast period and
Tier 1 and 2 CSPs will lead the investments.
LATAM continues to be dictated by worldwide CSP and
DCP operations in the region. Telefnica is the main
contributor of NFV and SDN spend in the region for
example, it has launched vCPE in Brazil and conducted
transport SDN trials in Peru in 2015.
NAs cloud computing and SDN markets will be the largest
of any region in the next 5 years as CSP/DCP competition
intensifies. AT&Ts Network on Demand and Verizons
enterprise cloud bursting services are key CSP SDN
drivers. AT&T and Verizon will lead in SCN spend in the
region, forcing other CSPs to invest to stay competitive.

Analysys Mason Limited 2015

5000
4000
3000
2000

1000
0
2014

2015

2016

2017

2018

2019

CAGR

APAC

1317

1721

2316

3020

4069

5387

32.5%

EMEA

2097

2544

3210

4038

5115

6242

24.4%

LATAM

280

336

421

539

688

774

22.5%

2268

2749

3537

4211

5372

6428

23.2%

NA

Source: Analysys Mason

Software-controlled networking: worldwide forecast 20152019

Data centre modernisation will drive hardware and services growth


through 2018, while NFV/SDN software solutions mature

Data centre modernisation projects by AT&T and Deutsche


Telekom (the PANNET project) will drive private cloud
computing and NFV hardware and services spending in
the next 3 years, which will drive other CSPs to spend to
compete. Virtualisation and application software
(including VNFs) will be the major spend during the
forecast period. New OSS and management functions will
mature during the infrastructure upgrade. Open-sourcebased COTS pricing uncertainty will slow software spend.
Services will grow from data centre modernisation and
early NFV and CSP SDN commercial projects because
CSPs will need suppliers services to develop, implement,
integrate, test, support and upgrade hardware and
software in multi-year vNGN transformations.1
1

Virtualised next-generation networks (vNGNs) are a combination of virtualised and


traditional physical network assets, in which most of the core is initially virtualised.

Analysys Mason Limited 2015

Figure 6: Software-controlled networking revenue by revenue type, worldwide, 201420192

8000
7000
Revenue (USD million)

Hardware (servers and storage) revenue will have the


highest growth because new semiconductor hardware is
needed for NFV and SDN technologies in computing,
network, signal, media and other processing. Intel is
leading in NFV semiconductor development, followed by
ARM. The importance of NFV semiconductor technology
should not be underestimated because it has led to about
USD65.5 billion in semiconductor acquisitions in 2015,
including Avago acquiring Broadcom (USD37 billion) and
Intel acquiring Altera (USD16.7 billion).

6000
5000
4000
3000
2000
1000
0
2014

2015

2016

2017

2018

2019

CAGR

Hardware

1076

1492

2070

2804

3657

4666

34.1%

Software

2573

2932

3588

4142

5254

6199

19.2%

Services

2313

2926

3825

4862

6333

7967

28.1%

Source: Analysys Mason

Further segmentation of the hardware and software segments is available in the associated Excel data annex.

Software-controlled networking: worldwide forecast 20152019

NFV and SDN will have a more significant impact on established


telecoms infrastructure and software in the next 10 years
We expect CSP spending to change significantly during the
next 10 years for the following reasons.

Figure 7: Software-controlled networking revenue by market segment, worldwide, 2014, 2019 and
2024

30000

NFV will become a larger market than SDN in the next


5 years, rather than 10 years as previously forecast.
However, as NFV matures, VNF, VIM and hypervisors
will commoditise and NFV market spending growth will
slow after the initial burst, while SDN spend will be
more constant.

Revenue (USD million)

25000

Spend on commercial CSP SDN-based services will


surpass cloud computing spend as cloud computing
services (XaaS) will continue to face price pressure.

In 510 years, CSPs will surpass the critical mass of


network virtualisation (NFV/SDN) in operations and
networks (about 35% of their installed base), and CSP
investment will further skew to these technologies.
After 2018, the technologies will be proven and vNGN
transformations will become more widely adopted.
In 2014, total telecoms hardware spend was USD102 billion.
We forecast NFV and SDN hardware revenue will be
USD8.5 billion and USD6.5 billion, respectively, in 2024
15% of the total telecoms hardware market in 2014. We
assume SDN hardware will be commoditised faster than
NFV hardware.

Analysys Mason Limited 2015

20000
15000
10000
5000
0
2014

2019

2024

CAGR

4773

8483

13241

10.7%

Network function
virtualisation (NFV)

572

6383

26985

47.0%

Software-defined networking
(SDN)

617

3965

15580

38.1%

Cloud computing

Source: Analysys Mason

10

Software-controlled networking: worldwide forecast 20152019

CONTENTS
EXECUTIVE SUMMARY
RECOMMENDATIONS
FORECAST
MARKET DRIVERS AND INHIBITORS
BUSINESS ENVIRONMENT
MARKET DEFINITION
ABOUT THE AUTHORS AND ANALYSYS MASON

Analysys Mason Limited 2015

11

Software-controlled networking: worldwide forecast 20152019

Recommendations

1
2
3

Build a cloud-based SCN architecture that streamlines delivery of existing services and enables delivery of
competitive, innovative, new digital services and B2B2B/C business models.
A cloud-based SCN architecture can digitalise existing services and provides CSPs with an agile, automated,
flexible, real-time, converged platform that can compete with CSP and OTT digital services. New B2B2B/C
business models will drive CSP business cases and roadmaps to invest in SCN technologies, where enterprise
customers are proving to be the most lucrative market with value-added (NFV) SDN-enabled WAN connectivity.

Develop agile, multi-faceted, long-term (10-year) vNGN transformation programmes that encourage
enterprise IT and network staff to share software skills, technology knowledge and foster a DevOps culture.
SCN transformation programmes should be multi-faceted, including IT virtualisation; end-of-life PNF-to-VNF
migration; SCN-enabled new service launches; legacy network rationalisation and physicalvirtual element coexistence; OSS consolidation to simplify the vNGN-OSS architectural transformation; and operations staff training
and reorganisation. We forecast vNGN transformations to emerge from 2016 onwards.

Vendors should use open-source software to develop COTS products in order to effectively participate in the
increasing competitive SCN supplier market.
Incumbent vendors, new entrants, and in-house CSP developments are competing for SCN revenue. In the short
term, vendor product immaturity is driving in-house CSP development, which is inhibiting NFV/SDN spend. Robust,
multi-vendor, open-source-based COTS solutions that avoid CSP or suppliers ecosystem partner lock-in will help
incumbent vendors to defend their market share and new entrants to be successful.

Analysys Mason Limited 2015

12

Software-controlled networking: worldwide forecast 20152019

CONTENTS
EXECUTIVE SUMMARY
RECOMMENDATIONS
FORECAST
MARKET DRIVERS AND INHIBITORS
BUSINESS ENVIRONMENT
MARKET DEFINITION
ABOUT THE AUTHORS AND ANALYSYS MASON

Analysys Mason Limited 2015

13

Software-controlled networking: worldwide forecast 20152019

Cloud computing investments increase in steps because virtualisation


slows investment until capacity upgrades are needed
CSP cloud computing revenue worldwide will grow from
USD4.8 billion in 2014 to USD8.5 billion in 2019, at a
CAGR of 12%.1

Figure 8: Cloud computing revenue by revenue type, worldwide, 201420192

4500
4000

CSPs cloud computing investments will slow in 2015 and


2017 because of the clouds elastic architecture. We
expect DCP acquisitions by CSPs to be minimal as
CenturyLinks core business was negatively affected by
Savviss poor financial results since its acquisition by
CenturyLink.

Revenue (USD million)

3500

Software, which comprises cloud services activation,


assurance, billing and security management, generates
the highest revenue in cloud computing. To compete with
DCPs, CSPs cloud service fulfilment and security
management spend will be faster than service assurance.

CSPs cloud computing includes the virtualisation of IT and OSS/BSS systems that are
on x86 servers, is largely attributed to hypervisor revenue and applications sold by
CSPs as SaaS. The 2013 USD25 billion OSS/BSS/SDP software market is excluded.

Analysys Mason Limited 2015

2500
2000
1500
1000
500

Hardware spend will continue to be led by servers, but


storage will grow fastest to facilitate big data initiatives.
Hardware will increasingly become commoditised.
Services revenue will mainly be driven by data centre
modernisation, and upgrades to provide higher, more
competitive SLAs for enterprise customers demand and
to compete with, if not differentiate themselves from,
other CSPs and DCPs cloud services.

3000

0
2014

2015

2016

2017

2018

2019

CAGR

Hardware

659

725

782

862

947

1036

9.5%

Software

2384

2571

3004

3222

3878

4189

11.9%

Services

1730

1965

2262

2541

3004

3259

13.5%

Source: Analysys Mason

Further segmentation of the hardware and software segments is available in the associated Excel data annex.

14

Software-controlled networking: worldwide forecast 20152019

Large data centre builds, cost reduction and intense competition in the
cloud services market will drive cloud computing spending
Figure 9: Cloud computing revenue by region, worldwide, 20142019

3500
3000
Revenue (USD million)

APAC will have the highest growth as CSPs mainly use


cloud for cost reduction. The market size will lag behind
that of NA and Europe because of pricing pressure. CSPs
in developed APAC will slow their spend on cloud and will
require a capacity upgrade in 2018 to meet increased
cloud demand in emerging APAC, namely China and India.
Tier 1 CSP acquisitions of DCP assets have had little
positive business benefit and will slow. In Europe, there
are more private cloud initiatives (such as Deutsche
Telekom's PANNET and Telefnicas CIO data
modernisation projects) than enterprise (public) ones. In
MEA, data centre projects to enter the enterprise cloud
services market are notable, but spend is slower than in
Europe.

Analysys Mason Limited 2015

2000
1500
1000

500

Cloud computing revenue in LATAM will increase thanks to


its cost benefits in a low-ARPU region. Worldwide DCPs will
continue to be CSPs main competitors in this market.
NA will continue to be the largest cloud computing market
because competition with DCPs and OTT players are
forcing CSPs to compete in the evolving B2B2B and
B2B2C business models (IaaS, PaaS and SaaS). Tier 1
CSPs are leading the spend in cloud computing. DCP
acquisitions by CSPs have not paid off well. As such, we
forecast a reduction in CSP acquisitions of DCPs worldwide.

2500

0
2014

2015

2016

2017

2018

2019

CAGR

APAC

955

1105

1270

1457

1801

2036

16.4%

EMEA

1671

1789

1996

2186

2505

2715

10.2%

LATAM

239

263

302

331

391

424

12.2%

1909

2104

2480

2650

3131

3308

11.6%

NA

Source: Analysys Mason

15

Software-controlled networking: worldwide forecast 20152019

CSP investment in private cloud spend will increase rapidly as their


enterprise cloud computing has spend burst as is the case with DCPs
Figure 10: Cloud computing revenue by revenue type, worldwide, 20142019 1

6000
5000
Revenue (USD million)

DCPs such as Amazon, Google and Microsoft periodically


upgrade cloud infrastructure based on customer demand
and then their spending slows to increase margins. CSPs
enterprise cloud spending also follows this trend, hence
the CSP enterprise cloud forecast has periodic spending
bursts.
CSPs private (internal) cloud spend will grow faster than
their enterprise spend as CSP virtualise internal IT
systems, OSS, BSS and middleware. Today, few OSS can
effectively be virtualised (scale and manage workload
state fully), but this will change over the forecast period.
Many advanced Tier 1 CSPs have virtualised about 70% of
their internal IT systems in their own private cloud,
primarily with VMware. This excludes OSS, BSS and SDPs.
Amazon reported a USD241 million loss in 2014 after its
USD274 million profit in 2013. It spent 10% year-on-year
on its Amazon Web Services (AWS) cloud infrastructure
and services. Amazon also notes that its reduction in AWS
pricing has improved sales by over 25% during 2014. We
forecast that Amazon will have a profitable 2015, and
possible losses in 2016 because of the lumpy spend
nature of the cloud services market.

3000
2000
1000
0
2014

2015

2016

2017

2018

2019

CAGR

CSP enterprise cloud

3455

3671

4111

4343

5137

5524

9.8%

CSP private cloud

1318

1590

1937

2281

2691

2960

17.6%

Source: Analysys Mason

Analysys Mason Limited 2015

4000

CSPs use DCPs for cloud services, data warehousing and IT SaaS, such as Office365. This will continue and
does not contribute to CSP cloud computing spend.

16

Software-controlled networking: worldwide forecast 20152019

NFV software spending will have the highest growth, but will not surpass
NFV hardware and services spending in the next 5 years
NFV investments worldwide will grow from USD572 million
in 2014 to USD6.4 billion in 2019, at a CAGR of 62%.

Figure 11: NFV revenue by revenue type, worldwide, 201420192

3500

By August 2015, the market had 79 limited commercial


deployments, which is faster than expected. We expect at
least 5 more limited commercial NFV launches in the next
12 months. The market is still largely in the trial and
testing phase because the software technology is
immature and needs to co-exist with traditional networks
and OSS. As such, Tier 1 CSPs such as Telefnica are
developing their own internal OSS.

Revenue (USD million)

3000

Service spending will continue to be high to support new


services using immature NFV solutions. New services
include KT and Vodafones commercial vIMS VoLTE and SK
Telecoms national IoT vEPC with Samsung deployments.
Hardware will continue to outpace software with projects
like Deutsche Telekoms PANNET, Telefnicas UNICA and
AT&Ts data centre modernisation projects, with mainly HP
and Intel.1
VNFs (components) will dominate software spending over
the forecast period. OSS/management spend will grow
rapidly as open-source-based products (such as OpenStack
VIM) will be critical to operating and managing vNGNs.
1

Network hardware is excluded here because it comprises traditional data centre


switches. All SDN network hardware is included in the SDN market for CSPs.

Analysys Mason Limited 2015

2500
2000
1500
1000

500
0
2014

2015

2016

2017

2018

2019

CAGR

Hardware

193

402

737

1118

1588

2204

62.8%

Software

70

151

260

440

714

1149

74.9%

Services

309

543

913

1431

2105

3030

57.8%

Source: Analysys Mason

Further segmentation of the hardware and software segments is available in the associated Excel data annex.

17

Software-controlled networking: worldwide forecast 20152019

Europe will lead NFV spend, and APAC and NA will use lessons from
Europe to grow faster than the NFV market average (62%)
Figure 12: NFV revenue by region, worldwide, 20142019

2500

2000
Revenue (USD million)

In APAC, NFV investment will be led by Tier 1 CSPs, mainly


in commercial vIMS for VoLTE, vEPC for LTE expansion and
IoT, and trials in vRAN to reduce access network cost.
CSPs in Australia, China, India, Japan and South Korea will
lead NFV spend. In India, Reliance Jios greenfield status
will give it the ability to implement NFV at launch. NTT
Communications commercial vEPC is planned for 2016.
In Europe, BT, Deutsche Telekom, MTS Russia, Orange,
Telecom Austria, Telecom Italia, Telefnica and Vodafone
led NFV investments, and MTS Russia and Vodafone have
launched limited vIMS VoLTE deployments. European
Tier 1 CSPs and their regional operating companies will
drive spending in the region during the forecast. MEA NFV
spend will begin to increase from 2017, thanks to NFV
product maturity.
In LATAM, NFV revenue is driven by Telefnicas worldwide
I+D-Global CTO Unit NFV strategy. This will encourage
large regional CSPs to spend to catch up with Telefnica.
NFV revenue will have the highest growth in NA, thanks to
AT&Ts Domain 2.0 initiative. AT&T, Verizon and cable
operators (for vCPE) will drive NFV revenue in NA. Sprint
and T-Mobile USA will lag behind as they focus on top-line
(revenue) improvement programmes in the next 23 years
before returning to large technology investments.

Analysys Mason Limited 2015

1500
1000
500
0
2014

2015

2016

2017

2018

2019

CAGR

APAC

177

329

573

927

1366

2043

63.0%

EMEA

229

427

725

1106

1587

2298

58.6%

LATAM

17

33

57

120

176

191

62.0%

149

307

554

837

1278

1851

65.6%

NA

Source: Analysys Mason

18

Software-controlled networking: worldwide forecast 20152019

NFV OSS and other management software will grow to USD0.5 billion at a
CAGR of 104%
NFV OSS/management revenue was 20% of the overall
NFV software market in 2014. It is expected to be 43% in
2019. We segmented this markets main components and
mapped them to our telecoms software taxonomy.

Figure 13: NFV OSS/management revenue worldwide, 201420191

200
180

Internal CSP development, open-source readiness and COTS


immaturity is inhibiting this market, but this will change after
2017 when multivendor COTS solutions spanning physical
and virtual domains will be rapidly adopted.

Revenue (USD million)

160

Network orchestration comprising both network and


service orchestration is used in most trials. The market
will continue to use this ETSI MANO network orchestration
view until the need for two distinct orchestrators (network
and service) for abstraction is understood and NMS and
network orchestration undergo product transformation.
Service orchestration will build on, and integrate with,
existing OSS functions to deliver OSS process automation
for existing and new services. Service assurance will need
VNF application performance management at a minimum
to gain NFV spend.
OpenStack-based COTS VIM and other single-vendor
solutions, such as physical and virtual NMS, will be
bundled with VNF sales or merged into next-generation
NMS, and boost NFV network management revenue.

Analysys Mason Limited 2015

NFV OSS drivers


begin to outweigh
the inhibitors

140
120
100
80
60
40

20
0
2014

2015

2016

2017

2018

2019

Service orchestration

16

32

65

145 115.8%

Network orchestration

14

24

46

92

185 104.2%

Service assurance

12

30 121.5%

NFV network management

15

24

40

80

140

CAGR

93.2%

Source: Analysys Mason


1

Analysys Mason views the MEFs lifecycle service orchestration (LSO) market as the sum of all the
OSS/management segments, except the Other management segment, and ETSI MANO is all except service
orchestration.

19

Software-controlled networking: worldwide forecast 20152019

CSPs adoption of SDN for dynamic provisioning of WAN and connectivity


services will increase software and service revenue faster than hardware
SDN investments worldwide will grow from USD617 million
in 2014 to USD4 billion in 2019, at a CAGR of 45%. This
forecast excludes large enterprises investing in enterprise
SDN with OpenFlow in their corporate data centres. This
market is about the same size as the CSP market.

Figure 14: SDN revenue by revenue type, worldwide, 201420191

1800
1600
1400

OVS hardware will slow hardware spend in 35 years. SDN


controllers overlaid on SDN enabled hardware will drive
growth in the interim. Today SDN controllers with
monitoring are widely available while NETCONF and YANG
are maturing for SDN configuration functionality.

We forecast DCP SDN spend will get overshadowed by


CSP SDN spend for T-SDN and dynamic VPNs. But, the
overall SDN market will grow slower than the NFV market
because of lack of use cases and mature COTS products
that provide clear business benefits.

Revenue (USD million)

The OPNFV Arnos project, which incorporates integration


of open virtual switches (OVS), OpenDaylight Helium
release and OpenStack Junos release will accelerate SDN
adoption by CSPs. But this will drive faster software and
services growth. Successful SDN WAN services using SDNcapable hardware and a mixture of in-house and vendor
software solutions and services by AT&T, Deutsche
Telekom and Verizon will drive other CSPs to increase
spend on this use case, which reduces time to market.

1000
800
600
400
200
0
2014

2015

2016

2017

2018

2019

CAGR

Hardware

225

364

551

824

1121

1426

44.7%

Software

119

210

324

480

662

861

48.6%

Services

273

418

650

889

1225

1678

43.8%

Source: Analysys Mason

Analysys Mason Limited 2015

1200

Further segmentation of the hardware and software segments is available in the associated Excel data annex.

20

Software-controlled networking: worldwide forecast 20152019

CSP WAN and transport SDN-enabled services will drive SDN revenue in
all developed markets
Figure 15: SDN revenue by region, worldwide, 20142019

1400
1200
Revenue (USD million)

In APAC, KVHs SDN burstable Ethernet service by Cyan


(acquired by Ciena in 2015) together with other
commercial SDN offers from NTT Communications and
Telstra drove CSP SDN spend in the region. Chinas
investments in mobile backhaul optimisation with cloud
RAN and transport SDN will also drive CSP SDN growth in
the region. DCP activity in the region will also increase,
giving APAC the highest SDN growth worldwide.
Deutsche Telekoms multi-country cloud VPN service will
drive other European CSPs to compete. MEA CSPs will
consider enterprise SDN when entering the cloud service
market they will delay CSP SDN implementation until the
technology is more mature. ETSI MEC initial NFV use
cases will drive SDN use cases later in the forecast.

Analysys Mason Limited 2015

800
600
400

200

In LATAM, SDN revenue will remain at 4% of total SDN


worldwide spend as CSPs stick to enterprise SDN
infrastructure readiness and lesser CSP SDN trials.
In NA, CSP SDN and DCP SDN commercial deployments
will continue to drive SDN spend in the region. AT&T
(Network on Demand) and Verizon (enterprise cloud
bursting) will lead spending in the next 23 years until
other fixed CSPs such as CenturyLink and cable operators
begin seriously investing in CSP SDN. Thus, the region will
grow slower than the overall SDN market (45% CAGR).

1000

0
2014

2015

2016

2017

2018

2019

CAGR

APAC

185

288

473

636

902

1308

47.9%

EMEA

197

328

488

746

1023

1229

44.1%

LATAM

25

40

61

88

120

159

45.1%

210

337

504

724

963

1269

43.3%

NA

Source: Analysys Mason

21

Software-controlled networking: worldwide forecast 20152019

CSPs will spend more on SDN than DCPs SDN can deliver revenuegenerating services to CSPs, but it is more of a cost to DCPs
Figure 16: SDN revenue by telecoms service, worldwide, 20142019

1800
1600
1400
Revenue (USD million)

Total CSP spend in the SDN (enterprise and telecoms)


market worldwide will grow from USD497 million in 2014
to USD2.4 billion in 2019, at a CAGR of 37%. There were
about 5 commercial CSP SDN launches between 2014
and 2015, and we expect at least three more commercial
SDN WAN launches in the next 12 months. Additionally,
CSP enterprise SDN activity increased in 2014 as CSPs
caught up with DCP use of SDN in their data centres.
As COTS SDN solutions mature, DCP SDN spend will
increase and lead the market as DCPs ensure their
network infrastructure is as flexible and automated as
their cloud infrastructure. CSP enterprise SDN will lag
behind DCPs and have the slowest growth rate.
Revenue-generating SDN WAN solutions such as cloud
bursting and zero-touch dynamic VPN services will propel
CSP SDN spend because they enable faster time to
market, earlier revenue streams and opex reduction on
high-ARPU enterprise customers. But the lack of proper
OSS will inhibit CSP SDN spend as CSPs will need inhouse development. OPNFV Arnos will assist but in-house
CSP development will be prevalent in the next 34 years.

1000
800
600
400
200
0
2014

2015

2016

2017

2018

2019

CAGR

Enterprise SDN (DCP)

120

298

519

833

1173

1546

66.7%

Enterprise SDN (CSP)

308

397

549

614

842

1071

28.3%

CSP SDN

189

298

458

746

993

1348

48.1%

SDN overlay solutions over SDN-enabled hardware will


continue to be standard until vSwitches and vRouters are
proven over the forecast period.

Analysys Mason Limited 2015

1200

Source: Analysys Mason

22

Software-controlled networking: worldwide forecast 20152019

CONTENTS
EXECUTIVE SUMMARY
RECOMMENDATIONS
FORECAST
MARKET DRIVERS AND INHIBITORS
BUSINESS ENVIRONMENT
MARKET DEFINITION
ABOUT THE AUTHORS AND ANALYSYS MASON

Analysys Mason Limited 2015

23

Software-controlled networking: worldwide forecast 20152019

Key SCN market drivers and inhibitors


Figure 17: Drivers and inhibitors in the SCN market

SCN will provide a long-term flexible, scalable vNGN platform for


existing and new digital economy services. This will require longterm transformation (process, people and systems).

HIGH

DRIVERS

NEW DIGITAL
SERVICES REVENUE

LOW

IMPACT

vNGN-OSS automation and operational flexibility will reduce opex,


time to market and capture revenue faster.
SERVICE
AGILITY

Hardware, data centre and disaster recovery cost savings will be


short term, but support tactical cost-reduction business cases to
secure SCN budgets in the near term.

COST
OPTIMISATION
SHORT TERM

TIMEFRAME

LONG TERM

NFV and SDN COTS software immaturity is driving in-house


development and inhibiting scalable operationalisation of these
technologies.

INHIBITORS

LOW

CSPs need to get a return on their investments in existing network


infrastructure, and everything will not be virtualised.

PRODUCT
IMMATURITY

HIGH

EXISTING
INFRASTRUCTURE

SCN spend will continuously compete mainly with sales and


marketing for budget and will need business case support for
increasing spend (for example, for large deployments,
replacements and upgrades).

UNCERTAIN
BUSINESS BENEFIT
Source: Analysys Mason

Analysys Mason Limited 2015

Source: Analysys Mason

24

Software-controlled networking: worldwide forecast 20152019

SCN market drivers: The need for infrastructure and operational


efficiency will drive short-term spending

Figure 18a: SCN market drivers


DRIVER

DESCRIPTION

EFFECT

TIMEFRAME

NFV and SDN will improve network build,


operational control and management.
Intelligent traffic management and automated
network build and optimisation will provide
notable cost reduction by deferring
infrastructure capex.

This is, and will continue to be, a driver


for virtualisation technologies. Lowpower, high-performance NFV and SDN
hardware is expected to be mainstream
after 2016 from improved commercial
semiconductors.

Cloud is proven to deliver cost optimisation.

Impact will lower gradually over time.

CSPs are now competing with DCPs and OTT


service providers for voice, messaging, video
and cloud service revenue. As such they
require service agility to launch new services
faster and do internal system development,
migration, upgrades and integrations faster
with zero downtime using SCN technologies.

Tier 1 CSPs are strengthening their cloud


capabilities to compete in the cloud market.
Verizon uses Mesoshere (based on Apache
Mesos) to improve cloud management and
SLAs. SDN-enabled WAN service automation
deployments are increasing.

CSP cloud spending will increase more


quickly than DCP cloud investments over
the period as CSPs compete with DCPs.

Implementations, upgrades and/or


replacements of legacy technology provide
opportunities for CSPs to introduce NFV
solutions such as vEPC and vHSS for LTE,
IMS for VoLTE, and vCDN for IPTV and mobile
TV/video deployment and expansions.

Strong , ongoing driver for NFV and, to a lesser


extent, CSP SDN.

This will be ongoing and will increase


over the forecast period as NFV products
mature, starting initially with core
elements and the service layer and then
moving to the distribution and access
network with ETSI MEC, vCDN and vRAN.

Cost optimisation (capex Hardware capex and ongoing infrastructure


and opex)
opex (includes power, floor space and
cooling). SCN technologies enable cost
savings by providing infrastructure footprint
reduction, operational flexibility and
automation.
Service agility

Deployment of new
technologies and
replacement of legacy
systems and network

[NEW DIGITALISED
SERVICES]

This is a step to digitalise the next


generation of services on SCN technologies.

SDN spending will be slow until after


2017, when COTS solutions are available
and proven. Similarly, NFV will be
NFV will need new service layer APIs to support affected by this driver after 2017 when
cloud and SDN services and will have an impact vNGN-OSS are mainstream.
on revenue.

Upgrades to SDN-enabled devices will have


more of an impact than new technology.
Cloud will be affected by this driver to virtualise
established OSS/BSS.

SDN spending will be primarily for legacy


upgrades during the forecast period.
Source: Analysys Mason

Analysys Mason Limited 2015

25

Software-controlled networking: worldwide forecast 20152019

SCN market drivers: SCN-enabled vNGN will fuel innovation for


new digital economy services revenue in the long term

Figure 18b: SCN market drivers


DRIVER

DESCRIPTION

EFFECT

TIMEFRAME

New potential digital


services revenue from
innovation

SCN will provide a long-term flexible, scalable


vNGN platform for existing and new
innovative digital economy services. This will
also facilitate the emergence of cloud
brokering services (exchanges for trading
cloud and network resources) using any of
the B2B, B2C, B2B2B or B2B2C business
models.

Cloud services selling and brokering are


dominated by Amazon, which is driving CSPs to
deliver traditional communication, competing
cloud and new digital services as SaaS to
survive in the new digital economy.

New digital revenue streams will


significantly drive cloud and SDN
spending from 2017 onwards.
Throughout the forecast period, SCN will
be used to deliver existing or competing
services, such as cloud, against AWS and
SDN for WAN, VPN, and other
connectivity services.

[NEW DIGITAL
SERVICES]

This will require long-term transformation


(process, people and systems).

NFV and SDN can enable CSPs to sell valueadded network and security resources to DCPs,
enterprises or other CSPs, with new on-demand
tariffs that diverge from the flat wholesale
tariffs.

NFV-as-a-service wholesale offers for


network services such as VoLTE and
IoT/M2M connectivity will begin to affect
the forecast after 2018.

Source: Analysys Mason

Analysys Mason Limited 2015

26

Software-controlled networking: worldwide forecast 20152019

SCN market inhibitors: Product immaturity in the short term,


and uncertainty over the business cost/benefit in the long term

Figure 19: SCN market inhibitors


INHIBITOR

DESCRIPTION

EFFECT

TIMEFRAME

Product immaturity

Telecoms carrier-grade (99.999%) NFV and


SDN hardware and software technologies are
lacking. NFV and SDN are incompatible with
established networks, OSS/BSS and
operational processes.

Spending will be limited to NFV and SDN trials


and limited deployments until COTS hardware
and software products are mature.

Product immaturity of NFV and SDN


hardware and software will greatly inhibit
spending until 2017 onwards. Thus this
inhibitor will decrease over the forecast.

COTS software for cloud computing, NFV and


SDN are being developed on open-source
with KVM/Xen hypervisors, OpenStack for
virtualised infrastructure management (VIM),
and Apache Mesos for resource clustering.
Open-source solutions have limited
guarantee and CSPs will need large internal
development teams, which only Tier 1 CSPs
can afford.

Open-source solutions will be used and will


drive in-house development and inhibit NFV
and SDN solutions spend. So, CSPs and DCPs
will seek open-source-based COTS NFV and
SDN solutions that have security and product
roadmap guarantees.
In cloud, proven open-source and COTS options
are available. CSPs will gravitate to COTS.

NFV and SDN products with open-source


foundations will become more mature
and adopted from 2017 onwards. This
will inhibit NFV and SDN spending until
2017. COTS SDN controllers for DCPs
will mature and integrate with other
management systems earlier than NFV
OSS/management.

CSPs need to get a


return on their
investments in existing
networks

Recent LTE, FTTx and transport networks


investments cannot be replaced until the
investment can be amortised typically 10
years. Everything will not be virtualised.

This will affect CSP spending on NFV and SDN,


and, to a lesser extent, DCP spending on SDN.
Most CSPs are trialling these technologies for
upgrade cycles and network augmentation.

This will affect the NFV and SDN market


during the entire forecast period, but the
impact will decline significantly from
2018 onwards.

Business cases
uncertainty against
other competing
budgets

CSPs technology teams require business


cases for all technology investments because
they are constantly competing with sales and
marketing budgets which hare seen as more
directly revenue generating to compete with
other CSPs, DCPs and OTT service providers.

A major inhibitor for NFV. NFV and SDN


business cases lack guarantees, unlike cloud
computing. Incurring additional NFV/SDN costs
to effectively get the same revenue by providing
the same services is a questionable business
case.

This inhibitors impact will decrease as


CSPs increasingly adopt SCN, for
example CSP SDN WAN services. NFV
adoption will surge in the next 2 years.

Fully open-source
solutions versus COTS
decision

Cloud computing needs robust hardware that


does not need to be replaced every 18 months.

Cloud will be least affected by this.

A long-term inhibitor that will decrease.


Source: Analysys Mason

Analysys Mason Limited 2015

27

Software-controlled networking: worldwide forecast 20152019

CONTENTS
EXECUTIVE SUMMARY
RECOMMENDATIONS
FORECAST
MARKET DRIVERS AND INHIBITORS
BUSINESS ENVIRONMENT
MARKET DEFINITION
ABOUT THE AUTHORS AND ANALYSYS MASON

Analysys Mason Limited 2015

28

Software-controlled networking: worldwide forecast 20152019

The business environment in 2014


Figure 20: Factors in the business environment in 2014

Maximising
operational efficiency

Reducing churn and


acquiring customers
Service
operations
centres

Most
important to
2014 results

Multi-channel
support

NPO

CEM

Cost
savings

Operations
consolidation and
rationalisation

Data services
subscriber
base growth

Data
consumption

Smartphone
penetration
Bundles

IP traffic
Multi-play

M2M/IoT

Multi-screen

NFV
SDN

Convergent
platforms

API management

Cloud computing
Partnerships/
roaming

Network
analytics

ARPU
Unified
communications
Small cells

SME
requirements

Big data
analytics

Analysys Mason Limited 2015

Digital economy

OTT
services

FTTx
roll-outs

Automation
Competition

Next-generation and
virtual networks

LTE

Content/VoD

Churn

Self-care
Operations
outsourcing

Monetising data
services

29

Important topics,
but did not have a great
impact on spending in
2014

Software-controlled networking: worldwide forecast 20152019

The business environment in 2014: the SCN market


Figure 21: Factors in the business environment in 2014

Maximising
operational efficiency

Reducing churn and


acquiring customers

Monetising data
services

Next-generation and
virtual networks
Private cloud
computing

Most
important to
2014 results

Enterprise
SDN
NFV
VoLTE (vIMS)
Enterprise vCPE
services

Cost
savings
SelfCompetition provisioning

SDN WAN
connectivity

Virtualised
CDN

OSS automation

Analysys Mason Limited 2015

Automation
Vo-WiFi/Wi-Fi calling

Transport SDN

Convergent
platforms

Policy, analytics
and security for
virtualisation

Important topics,
but did not have a great
impact on spending in
2014

Legacy
replacements
Operations
consolidation and
rationalisation

vEPC for
M2M/IoT

Virtual SDP
deployments

Service
agility

Capacity
planning

Digital economy

CEM

30

Software-controlled networking: worldwide forecast 20152019

Network virtualisation is steadily advancing to commercialisation, driven


by the need for increased service agility
Figure 22: CSPs weighting of drivers for network virtualisation, 20152

NFV has progressed further than SDN and offers more-immediate


capex savings in CSPs networks.

Service
agility

Three main types of NFV/SDN-enabled CSP service deployments


are occurring today:

100%

virtualised IMS (vIMS) deployments for VoLTE


virtual CPE (vCPE) with SDN-enabled transport deployments for
enterprise connectivity and residential broadband services

50%

virtualised EPC (vEPC) deployments for IoT.


In terms of maturity, SDN is lagging behind NFV in CSPs network
trials and deployments, but is increasingly being used for interand intra- data centre connectivity use cases.

0%

CSPs that we have interviewed as part of our research have noted


that the main strategic benefit of network virtualisation is
increased OSS automation, which enables service agility.1 This
increases revenue by enabling new services, and reduces time to
market, capex and opex.

Cost
optimisation

Source: Analysys Mason

Established CSPs may need up to 10 years to complete the vNGN


transformation with a new OSS architecture that is less expensive,
more agile and more automated one that matches the flexibility
of a virtualised network, while still managing a traditional network.
We call this a vNGN-OSS.

CSPs will need to harness all three virtualisation technologies of


cloud computing, NFV and SDN to achieve maximum benefit.

Service agility refers to faster development of internal systems and new services, and to reduced
time-to-market for launching error-free services, both on CSPs own network resources and
through collaborations with third parties.

Analysys Mason Limited 2015

Operational
flexibility

31

Updated from Analysys Masons Preparing for an OSS architecture that can support NFV, SDN and
established technologies. Available at www.analysysmason.com/Network-virtualisation-Apr2014.

Software-controlled networking: worldwide forecast 20152019

CSPs need a vNGN-OSS that supports service agility enabled by automated


orchestration of a hybrid network to seize digital economy opportunities
Figure 23: Key capabilities required of a vNGN-OSS architecture to manage multi-vendor
hybrid networks in support of CSP business goals

The success of CSPs in the digital economy depends on them


deploying a vNGN-OSS architecture that can dynamically and
holistically manage physical and virtual resources to support
service innovation at scale.1

CSPs will need to protect potential revenue of USD1.71 trillion in


2015 while attacking the wider market for digital economy
services.2 In order to do this, CSPs need to build new networks.
Dynamic
inventory

Analysys Masons proposed vNGN-OSS will enable CSPs to provide


digital economy services via NFV and SDN, and support traditional
fixed and mobile services. Important elements of a vNGN-OSS
include a dynamic master control inventory, a service
orchestration layer for process automation, and a management
and enforcement layer for resource orchestration and control.

Service
fulfilment
Service
assurance

We provide the following recommendations.


CSPs should understand that vNGN-OSS is critical to deploying
network virtualisation and must plan accordingly.

We expect vNGN-OSS to be less expensive and more agile than existing OSS. For more information,
see Analysys Masons Preparing for an OSS architecture that can support NFV, SDN and
established technologies. Available at www.analysysmason.com/Network-virtualisation-Apr2014.

For more information, see Analysys Masons Global telecoms market: interim forecast update
20142019. Available at www.analysysmason.com/GTF2015.

Analysys Mason Limited 2015

CSP revenue:

USD1.7 trillion
worldwide

Physical and virtual


network management,
orchestration and control

Vendors should expect significant competition for vNGN-OSS


business, have a solid strategy for providing hybrid network
solutions and expect the competitive landscape to change.
1

Service
orchestration

New elements
discussed in
this report
Source: Analysys Mason

32

Software-controlled networking: worldwide forecast 20152019

NFV/SDN deployment strategies are mostly service-led, but CSPs are


using multiple strategies to meet their business goals
Figure 24: Summary of main NFV/SDN deployment strategies

We expect that CSPs will use multiple NFV/SDN deployment


strategies. CSPs will need to employ the right combination of
strategies to support business goals without recreating silos that
can increase operational costs and inefficiencies.

A service-led approach is the most common NFV/SDN deployment


strategy among CSPs today, because it is low risk.
Examples of using a service-led approach are:

Description

Service-led
strategy

Investment for a new service allows the


introduction of NFV and SDN for the service
in a greenfield-like implementation isolated
from existing network complexities.

80%

Lifecycle
upgrade
strategy

Investing in upgrading end of life


infrastructure with virtual network functions
(VNFs) to replace physical infrastructure.
This approach does not require the CSP to
have an explicit business case for network
virtualisation if it can use existing budgets

15%

Platform
migration
strategy

This is an IT-like approach. The CSP defines


a scalable virtualisation platform reference
architecture and migrates infrastructure
(VNFs) and services onto the platform over
time. Migration is triggered by a
combination of infrastructure and service
investments as in the above two strategies,
but avoids the past practice of creating
deployment silos. Telefnicas UNICA
platform and AT&Ts Universal Services
Platform, a convergent digital voice
platform, are examples of this strategy.

5%

VoLTE built on virtualised IMS, which KT launched in 2014


small-medium enterprise (SME) services and residential
broadband services built on virtual CPE deployments that AT&T
(Network on Demand), Deutsche Telekom (Cloud VPN),
Telefnica (home gateway for residential broadband) and
Verizon (enterprise cloud bursting) have launched
IoT built on virtualised EPC deployments, which SK Telecom
plans to launch nationally.
Regardless of the deployment strategy used, CSPs will require
significant systems integration for successful virtualisation
deployments.
The platform-migration strategy has been successful in IT, but is
perceived as a high-risk strategy by most CSPs. Only a few large
(Tier 1) CSPs are taking this approach.

Proportion
of CSPs
considering
this strategy

Deployment
strategy

Source: Analysys Mason

Analysys Mason Limited 2015

33

Software-controlled networking: worldwide forecast 20152019

NFV VNF availability has accelerated (although commercial deployments


remain limited 23 years after launch), but SDN take-up is more gradual
Figure 25: Roadmap of initial NFV and SDN use cases and functions adopted by CSPs, 20132023

NFV-driven
2013

Caching,
FW/IPS,
DNS/DHCP,
load balancing,
TAS, PCRF, DPI

2014

CSP SDN-driven

2015

IMS, SBC, CGNAT, M/SMSC,


NG-IN, vCPE,
DVR, EPC

2016

Traffic steering in
the core: Gi
interface and ISP
DMZ LAN

RTC/OCS,
HSS/UDC,
Diameter
routing, IPTV
headend

2017

Transport traffic
management:
optical, IP RAN,
backhaul

Core routing
functions,

Media resource
processing: MRF,
real-time
transcoding

2018

2019

RT network
analytics

2020

Content delivery
networks (CDN): ABR,
P2P routing, TCP
optimisation, probes

2021

Wi-Fi access
gateways, edge
routers and
switches

5G mobile core
functions

2022

2023

Cloud RAN:
software-defined
radio, multi-RAN,
HetNets

Increasing network virtualisation spend from CSPs


BSS/OSS virtualisation (cloud computing) will be ongoing
Source: Analysys Mason

This roadmap indicates approximate timeframes for the flow of commercial revenue from these technologies. They will enter the
mainstream 35 years after the revenue flow begins.

Analysys Mason Limited 2015

34

Software-controlled networking: worldwide forecast 20152019

NFV VNF readiness will attract SDN adoption as they complement each
other to maximise SCN benefits, for example from vCPE to cloud VPN
The following assumptions underlie the NFV/SDN timeline on the previous slide, based on Analysys Masons research.
NFV adoption will be faster than SDN because immediate cost benefits are clearer, then the SDN complement will follow.
Network functions that do not require high-performance, dedicated processing and yield significant cost-reduction and service-velocity
(used to launch new services such as vIMS for VoLTE) benefits will virtualise first.
The NFV/SDN market landscape is progressing more rapidly than any other telecoms technology area, past or present (for example, CEM,
SON, 4/5G and IP). As such, commercial availability of VNFs on the NFV timeline has exceeded Analysys Masons 2014 forecast through
a combination of CSPs service-led deployment strategy and network functions replacement based on the lifecycle-upgrade strategy.
23 years after commercial availability of NFV- or SDN-enabled functions, deployments will increase from exploration to adoption of
these functions by CSPs.
CSPs will need OSS and orchestration functions that support NFV/SDN to move from the exploration stage to adoption with a
standardised deployment approach. As such, we have developed a vNGN-OSS architecture that CSPs should consider for this.1
Increasing mobile video traffic over LTE and ETSIs MEC initiative will increase the availability of mobile CDN solutions, first with NFV and
then SDN for video traffic steering and optimisation.
Not all functions will be virtualised with NFV, including high-performance, low-latency functions that need dedicated appliances (for
example, Aniti-DDoS security functions in ISP or Gi LAN, aggregation routers), optical equipment and legacy technology (such as
SS7/SIGTRAN network functions).

For further details, see vNGN-OSS: an architectural framework for virtual network management and orchestration. Available at www.analysysmason.com/vNGN-OSS-Sep2015.

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Software-controlled networking: worldwide forecast 20152019

CONTENTS
EXECUTIVE SUMMARY
RECOMMENDATIONS
FORECAST
MARKET DRIVERS AND INHIBITORS
BUSINESS ENVIRONMENT
MARKET DEFINITION
ABOUT THE AUTHORS AND ANALYSYS MASON

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Software-controlled networking: worldwide forecast 20152019

Definition of geographical regions


Figure 26: Regional breakdown used in this report

NORTH
AMERICA
NA

EUROPE, THE
MIDDLE EAST
AND AFRICA
EMEA

LATIN
AMERICA
LATAM

ASIAPACIFIC
APAC

Source: Analysys Mason

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SCN market and revenue type definitions


Figure 27: SCN market definitions
MARKET

DEFINITION

CLOUD COMPUTING

Covers cloud infrastructure (hardware, software/applications and services) and management of CSPs internal private cloud infrastructure
and cloud management for enterprise customers. Cloud management covers the software systems that enable customers to order,
activate, assure, bill and secure cloud services. This includes both capex and opex. This definition excludes network virtualisation, which we
include in NFV and SDN.

NETWORK FUNCTION
VIRTUALISATION (NFV)

This market is defined by the parameters identified by the ETSI Industry Specification Group (ISG) as well as new OSS development (refer
our vNGN-OSS architecture and reports). It covers administrative, operations and management software and network functions such as
routing, switching, IMS functions, caching, PCRF, PCEF, MME, SMSC, HSS and media processing.

SOFTWARE-DEFINED
NETWORKING (SDN)

SDN that covers data centre and CSP transport networks. This includes OpenFlow protocol (led by the Open Networking Foundation (ONF),
OpenDaylight and ONOS (which are non-OpenFlow solutions) are included. We will continue to focus on, and include, the CSP SDN market
as it evolves.

Figure 28: SCN market revenue type definitions


TYPE

DEFINITION

HARDWARE

Includes the hardware and maintenance associated with each SCN market.

SOFTWARE

Includes product (licence software and maintenance) and product-related services (installation and configuration of product software
supplied) in each SCN market. Also includes hardware control and management software, such as virtualisation, high availability, security,
management, application optimisers, middleware and certified APIs.

PROFESSIONAL
SERVICES

Services that suppliers provide and are associated with their hardware and software services, such as implementation, systems
integration, support and maintenance. This includes design, deployment, systems integration, product and solution support, and managed
services in each SCN market. Excludes CSPs in-house development.
Source: Analysys Mason

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SCN markets sub-segment definitions


Figure 29: Definitions of cloud computing market sub-segments by CSP cloud service type
SERVICE

DEFINITION

CSP ENTERPRISE
CLOUD

Cloud computing of CSPs data centres used to deliver cloud services (IaaS, PaaS, SaaS) to enterprise customers.

CSP PRIVATE CLOUD

Cloud computing of CSPs enterprise IT and telecoms software (OSS, BSS and SDP) to manage, operate and deliver fixed and/or mobile
telecoms services (for example, voice, SMS, broadband, VPNs, LLC and video (IPTV/VoD) to its customers.

Figure 30: Definitions of SDN sub-segments by deployment type


TYPE

DEFINITION

ENTERPRISE SDN
(DCP)

SDN deployments that have been deployed by DCPs in their data centres, which are mostly related to the OpenFlow protocol and led by the
Open Networking Foundation (ONF), but some non-OpenFlow solutions are included. We do not break out the OpenFlow and non-OpenFlow
deployments.

ENTERPRISE SDN
(CSP)

Similar to enterprise SDN for DCPs, but CSPs implement it in their data centres.

CSP SDN

These are SDN deployments in CSPs metro, optical, transport and access networks and WANs, and may use OpenFlow protocol,
OpenDaylight, ONOS or other SDN protocols and solutions such as NETCONG/YANG for SDN configuration.
Source: Analysys Mason

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SCN markets hardware and software segmentations definitions


Figure 31: Definitions of SCN hardware market sub-segments by hardware type
SERVICE

DEFINITION

SERVER

Compute hardware resources used to deliver the service. Today this is x86 servers and is expected to continue to be. These are general
computing hardware that can become an application or network function (including SDN white boxes) server depending on what is installed
on the hardware. It is expected that this hardware will also have an operating system (OS).

STORAGE

Storage hardware for storing data and application or network function specific files, as well as network data (such as monitoring and
management). This hardware may be a common back end for multiple application and network functions or it may be dedicated to
application or network function servers.

NETWORK

Switches and routers hardware with dedicated networking software and mostly non-x86 hardware architecture as in general compute
hardware. These can be SDN-enabled but not SDN white boxes they are typical network-switching resources that can only do switching
and/or routing network functions.

Figure 32: Definitions of SCN software market sub-segments by software type


TYPE

DEFINITION

VIRTUALISATION
LAYER

Hypervisors, containers (such as using Docker technology), and network operating systems (NOS) (that is, host OS on white-labelled SDN
vSwitches or vRouters). This is the software for doing the actual virtualisation and bare minimum management of the virtualisation
software. In-depth virtual resource management is in the OSS/management segment below.

COMPONENTS

This includes the virtual software components (applications or network functions) that are software modules in each SCN market, such as:
cloud computing: software applications installed on the virtual machines (VM)
NFV: virtual network functions (VNFs) software licence and maintenance
SDN: VNFs such as OVSs and virtual routers (vRouters).

OSS /MANAGEMENT

Administrative, operational and management software that includes the following three main sub segments: service fulfilment, service
assurance and other management software.
Source: Analysys Mason

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SCN markets OSS/management software segmentations definitions


Figure 33: Definitions of SCN OSS/management sub-segments by telecoms software function
SERVICE

DEFINITION
Provides multivendor service activation/provisioning and orchestration of customer service orders/requests. It includes the major
functions of order management, activation and service catalog/inventory monitoring and tracking to ensure it is tracked to be
billed). Examples for each SCN segment are:

SERVICE FULFILMENT

cloud computing: cloud service (IaaS, PaaS, SaaS) provisioning, orchestration and management
NFV: please refer to the service orchestration definition
SDN: service fulfilment OSS modules that manage and connect to OSS controllers via OpenFlow, OpenDaylight, RestAPIs and so
on to enforce customer service or order requirements or to approve recommended network changes for better network planning
and optimisation, and other service fulfilment master control use cases.
Provides passive fault, performance monitoring and management functions for the service and resources. Examples for each SCN
market are:

SERVICE ASSURANCE

cloud computing: multivendor infrastructure management, application performance management, cloud resource management
and so on
NFV: same as cloud computing but excludes generic VIM, such as OpenStack, and vendor-specific management, such as VNF
managers and Alcatels NSP solution
SDN: similar to cloud computing assurance, but for SDN switches and routers and also white-labelled OVSs, vSwitches and
vRouters using traditional SNMP monitoring and assurance management.

OTHER MANAGEMENT

This includes other management software such as security management, VNF managers, single vendor solutions (for example,
hardware-specific management software), generic VIM, custom software for management, cross system reporting software, etc. For
NFV, this includes network orchestration.
For SDN, this includes the SDN controllers that has both traffic flow management done by protocols such as OpenFlow and
OpenDaylight, and configuration functions (for example, using OF-Config or NETCONF).
Source: Analysys Mason

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SCN markets NFV OSS/management segmentations definitions1


Figure 34: Definitions of NFV SCN OSS/management sub-segments by telecoms software function
SERVICE

DEFINITION

SERVICE ORCHESTRATION

New software or OSS add-on module to automate and enhance the service design, creation, (de-)activation, order and service
lifecycle management. It abstracts the service and customer facing resources from the network. This is a new service fulfilment OSS
function. It works with the existing OSS inventory and service fulfilment systems.
Network resource scaling and management is excluded - include in network orchestration, below.

NETWORK ORCHESTRATION

New software or OSS add-on module to automate and enhance network service creation, scaling, self-healing and network service
and resource lifecycle management. It abstracts the network from service and OSS layer. It instructs and manages the physical and
virtual infrastructure management systems. It works with the existing OSS or service orchestration and service assurance systems
to provide lifecycle management of services and resources. VNF managers (VNFM) are included to match our vNGN-OSS
architecture.

SERVICE ASSURANCE

Multivendor service assurance fault and performance monitoring and management of VNF resources and services only. Excludes
VIM, VNFM and vendor-specific management software.

NFV NETWORK
MANAGEMENT

Mainly general VIM (such as OpenStack variants) and other single vendor management software such as NEPs evolving NMS
solutions but only the license and maintenance for NFV application and not physical network elements.
Source: Analysys Mason

For further details, see vNGN-OSS: an architectural framework for virtual network management and orchestration. Available at www.analysysmason.com/vNGN-OSS-Sep2015.

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Summary of our market sizing and forecast methodology


We have employed the following methodology to develop the market sizing and forecast in this report.
Cloud computing
Accumulated internal and external data on total cloud computing spending, revenue and M&A activities.

Analysed vendor data and operator financial reports and modelled the size of the market.
Validated this market size by comparing it with worldwide DCP and CSP spending, estimated vendor revenue and ratios of spending to
revenue in CSPs enterprise cloud services business units.
NFV
Accumulated internal and external data on NFV PoCs, trials and deployments.
Analysed the anatomy of NFV deals in terms of hardware, software and services spending, and modelled the size of the market.
Validated this market size by comparing it with worldwide CSP spending and estimated vendor revenue for NFV engagements, under nondisclosure agreements (NDAs).
SDN
Accumulated internal and external data on SDN PoCs, trials and deployments.
Analysed the anatomy of SDN deals in terms of hardware, software and services spending, and modelled the size of the market.

Validated this market size by comparing it with worldwide CSP spending and estimated vendor revenue for SDN engagements, under
NDAs.
Our forecast model is summarised on the next slide. The SCN market is particularly new so we relied on continuous data gathering of CSP
insights on projects, spending and planned budgets. Explanations of our forecasts are provided throughout this report.

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Our comprehensive forecast model is supported by a sound knowledge


of markets
Figure 35: Key factors influencing forecast assumptions

We have been analysing global telecoms markets and vendors


for more than 10 years and understand the dynamics of the
telecoms software market and differences between vendors and
CSPs strategies and approaches.

TELECOMS MARKET INSIGHTS


Historical market evolution patterns
Specific deals announced
Effects of drivers and inhibitors on market
growth during the forecast period

All our forecasts are prepared by analysts who understand the


numbers and the markets. This is not a number-crunching
exercise performed by statisticians, but a clear statement of the
expected development of telecoms software markets expressed
in numerical form.

MARKET
INSIGHTS

INTER-MARKET
COMPARISONS

INTER-MARKET COMPARISONS
Knowledge of the structural
similarities and differences
between markets
Benchmarking with similar
markets

The forecasts are intended to predict outcomes, rather than to


model market opportunity.

The key assumptions in our forecasts are the product of a


considered engagement with likely developments in particular
markets. As part of the process, we also solicit opinions on market
developments from major players.

MACROECONOMICS

We are happy to discuss our key assumptions in more detail with


clients.

MACRO-ECONOMICS
Forecast of IT industry and
telecoms services and markets
Historical telecoms software
market benchmarks
GDP

Source: Analysys Mason

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Software-controlled networking: worldwide forecast 20152019

CONTENTS
EXECUTIVE SUMMARY
RECOMMENDATIONS
FORECAST
MARKET DRIVERS AND INHIBITORS
BUSINESS ENVIRONMENT
MARKET DEFINITION
ABOUT THE AUTHORS AND ANALYSYS MASON

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Software-controlled networking: worldwide forecast 20152019

About the authors


Glen Ragoonanan (Principal Analyst) is the lead analyst for Analysys Masons Service Delivery Platforms and Software-Controlled
Networking research programmes. He joined Analysys Mason in 2008 and has worked as a consultant on projects on next-generation IT and
telecoms networks, systems and technologies for incumbents, new entrants, private companies, regulators and public-sector clients. His
primary areas of specialisation include operations and business support systems (OSS/BSS) solution architecture and integration for business
process re-engineering, business process optimisation, business continuity planning, procurement and outsourcing operations and strategies.
Glen is a Chartered Engineer and project management professional with an MSc from Coventry University.

Gorkem Yigit (Analyst) is part of the Telecoms Software research team, contributing to the Service Assurance, Network Orchestration,
Service Delivery Platforms and Customer Experience Management programmes. He started his career in the telecoms industry with a graduate
role at a leading telecoms operator, before joining Analysys Mason in late 2013. He has also written an academic paper about market
acceptance of cloud enterprise resource planning (ERP) software and he earned a cum laude MSc degree in Economics and Management of
Innovation and Technology from Bocconi University (Milan, Italy).

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Software-controlled networking: worldwide forecast 20152019

About Analysys Mason


Knowing whats going on is one thing. Understanding how to take advantage of events is quite another. Our ability to understand the
complex workings of telecoms, media and technology (TMT) industries and draw practical conclusions, based on the specialist
knowledge of our people, is what sets Analysys Mason apart. We deliver our key services via two channels: consulting and research.

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Our focus is exclusively on TMT.


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47

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Research from Analysys Mason


We provide dedicated coverage of developments in the telecoms, media and technology (TMT) sectors, through a
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Software-controlled networking: worldwide forecast 20152019

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Software-controlled networking: worldwide forecast 20152019

PUBLISHED BY ANALYSYS MASON LIMITED IN SEPTEMBER 2015


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