By: Patrick Kelly
As we close off 2015, many clients are looking ahead to economic and technology trends of 2016 and beyond. In the telecommunication sector a 10 year outlook might be more prudent as history provides us with guide posts that show just how long it takes to implement disruptive technologies that fundamentally change business models. The Internet and IP technology took more than a decade to transform the ICT sector. As we look to the future NFV and SDN will bring tremendous business benefits that will also bifurcate the market and create economic dislocation for CSPs and suppliers.
The shift from purpose built hardware to a hybrid virtualized network will reach a crossover point in 7 years. Appledore Research Group forecast that the total addressable market for Cloud Management solutions at $7.3 Billion in 2025. CSPs cannot wait to accrue the benefits of virtualization. This means that operations must transform more rapidly than the network itself, allowing for more agile methods. We are optimistic about the potential of the Telco Cloud. At the same time, we are concerned that the industry will follow its historical path, investing in new technology, but under-investing in the business model changes, operational changes and finally management systems changes that will either enable or thwart economic success.
Appledore Research Group defines “cloud” as the collection of virtualization technologies that are transforming the economics and operations of IT and now telecom networks:
- Virtualization of applications and network functions (e.g.: NFV)
- Virtualization of flows (SDN, potentially running on virtualized routers)
- XaaS, virtualizing instances of storage, compute, apps
Cloud technology promises significant savings, not merely due to lower priced appliances, but much more in terms of capacity utilization. This is due to flexibility and ability to re-arrange functions and in operations through the elimination of manual task that include truck rolls, configurations of the network by craft technicians, and back office order management activities. These will be transformative to telecommunications business models and economics.
The table below summarizes some of the business drivers that will increase the market from USD130 million in 2015 to USD7.4 billion in 2025, a CAGR of 50%.
We have applied some forecast modelling to how we see the market developing over the next decade. Our underlying assumption is that NFV and SDN will be driven by a cap and grow substitution strategy. The substitution will be driven by superior technology and economic business benefits of NFV and SDN. We use the Fisher-Pry model but also acknowledge that is a single parameter model. The substitution is more complex because technology innovation can cause leapfrogging (2G to LTE) and delays due to depreciation schedules or price/performance improvement in legacy technology (ADSL/ADSL2+).
For business executives evaluating the future impact of NFV and SDN we have compiled quantitative and qualitative models and analysis to justify how we see the market evolving. Please contact us directly for syndicated or consulting services.