The virtualization of the telecommunication network will create dramatic economic operational dislocations in the CSP operating environment and supplier market. The shift from purpose built hardware to a hybrid virtualized network will occur over the next 15 years. CSPs cannot wait 15 years 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. To this end, we are beginning a set of forecasts with a parametric view of how the substitution from physical elements to virtual elements will progress. This is based on an analysis of financial data, trends, the distribution of plant, property and equipment, revenues and service mixes. From this we apply a Fisher-Pry Substitution model to understand the likely size of the market for virtualized equipment over a reasonable planning horizon.
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