Patrick Kelly

Layer 123 hosted their annual SDN NFV World Congress in The Hague last week. The event attendance was down from last year. We estimate that less than 1,000 stakeholders attended the event. Layer 123 event founders Robert Jones and Mark Lum sold the event organization to EuroMoney in May 2018. The event peaked in 2016 and has been in decline both in terms of attendees and exhibitors as the overall market investment for NFV solutions has stalled. The industry is at a crossroad.

Appledore Research met with CSPs, suppliers, and system integrators at the event over a 3-day period. The underlying themes from our conversations follow:

CSPs are not accruing the benefits of NFV.

The shift from hardware to software should yield flexibility and lower cost but this is not currently being realized. Instead, we see additional spending on Openstack, high integration cost into existing management stacks, VNFs that look like PNFs and automation being applied using old workflow processes. CSPs are attempting to harness the power of opensource and build a eco-system but efforts are fragmented. See our Market Outlook report on ONAP.

ONAP Market Impact

CSPs are squeezing their suppliers for price concessions and proof that each supplier can help them make the cloud transformation journey while avoiding pitfalls of the past.

Niche suppliers innovating in the market are stuck in POC land.

CSPs procurement processes are long mired in validation, testing, and interoperability test in the labs. This is draining scarce resources in smaller suppliers without any firm commitments to inking a deal. CSPs will tell you that smaller suppliers bring more risk than established incumbent suppliers – a fair critique. But the real reason is that CSPs culture and “way of doing business” has not evolved to take advantage of cloud native solutions. Cloud native means network engineering and operations must radically change and adopt new skill sets and workflow processes. This is a big obstacle, which means redeploying the workforce and eliminating positions not suited for a cloud native service architecture. Will CSPs take this step in the foreseeable future? Right now, we do not see any evidence suggesting a change in thinking at the top.

CSP services are still connectivity centric

Most new offers are still focused on the business of connectivity with Network as a Service, Managed Services, and Hosted Services being packaged for B2B to bring improved time to market and flexible offerings. The other area is AI and Analytics which could provide significant benefits to operations, planning, care, and marketing groups. We are noting hundreds of services that can shift to subscription-based models. with significant upside for suppliers and CSPs selling to the Enterprise market.

System integrators seem to be the primary beneficiaries of NFV and SDN.

The system integration (stringing together) of legacy and new management stacks will yield top line revenue growth for pure SIs, professional service led ISVs, and NEMS building out their software and service portfolios.