NFV/SDN BUSINESS CASES: PRIORITISE vcpe-enabled SERVICES AND VoLTE/vIMS; THEN VIDEO AND IoT SERVICES

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1 analysysmason.com RESEARCH STRATEGY REPORT NFV/SDN BUSINESS CASES: PRIORITISE vcpe-enabled SERVICES AND VoLTE/vIMS; THEN VIDEO AND IoT SERVICES GLEN RAGOONANAN and GORKEM YIGIT

2 About this report This report analyses the business case benefits for network function virtualisation (NFV) and software-defined networking (SDN) that can be achieved through a services-based approach, rather than a virtual network function (VNF) approach. The report provides quantifiable business case outputs for: virtual customer premises equipment- (vcpe-) enabled enterprise and residential services, and VoLTE voice services using virtualised IMS (vims) rather than a physical IMS deployment with call continuity. We explain why video services could drive the next wave of NFV and SDN business cases, followed by IoT and M2M services. We also provide recommendations for communications service providers (CSPs) and suppliers actively involved in NFV and SDN deployments. This report is based on several sources: Analysys Mason s internal research, including the following sponsored business case whitepapers, which have received industry notice: vcpe services business case: potentially billions of dollars payback for fixed CSPs The pivotal role of service assurance systems in NFV/SDN environments. interviews with stakeholders in the NFV/SDN market. KEY QUESTIONS ANSWERED IN THIS REPORT Why should NFV/SDN business cases be developed from a service perspective rather than a VNF perspective? How can the business case for using vims for VoLTE be quantified? How can the business case for using vcpe for fixed enterprise services be quantified? How can the business case for using vcpe for fixed residential services be quantified? Why it is good to be a first-mover CSP with a vcpe solution? How can OSS automation for order-to-cash (O2C) processes offer strategic cost savings to help drive additional revenue? WHO SHOULD READ THIS REPORT CFO and CMO executives in CSPs that are trying to understand why budgets should be allocated to NFV and SDN technology implementations. CTOs in CSPs that are finding it difficult to explain the benefits of NFV and SDN to their CEO, CFO and CMO to gain long-term investment approval. Suppliers (systems integrators and vendors) active in the NFV and SDN space (namely vims and vcpe) that want validated, quantifiable data to support their marketing and sales efforts. Vendors product managers aiming to justify additional investment in their NFV/SDN product roadmaps. 2

3 CONTENTS EXECUTIVE SUMMARY vcpe BUSINESS CASES: FOR ENTERPRISE AND RESIDENTIAL SERVICES USING vcpe AND SDN vims BUSINESS CASE: FOR VoLTE NEXT BUSINESS CASES: VIDEO AND IoT SERVICES USING vcdn AND vepc APPENDIX ABOUT THE AUTHORS AND ANALYSYS MASON 3

4 Executive summary NFV and SDN business cases must demonstrate an understanding of the appropriate level of investment needed to generate significant business benefits. Successful NFV/SDN business cases must be underpinned by a services-based use case perspective, rather than a VNF (virtual network function) view. There is still a high degree of uncertainty for both CSPs and their vendors around the business case for NFV/SDN technology: CSPs currently commit less than 5%, on average, of their entire technology budget to NFV/SDN initiatives. We have developed three detailed 5-year NFV/SDN services-based business cases: Enterprise vcpe-enabled services for SDN-enabled advanced connectivity services and NFV-enabled value-added services Residential vcpe-enabled services for upsell from double- to triple-play services and broadband and digital TV upgrades VoLTE using a virtual IMS (vims), rather than a physical IMS for voice services with call continuity handover to 3G networks. As such, we recommend that CSPs should: use a services-based approach for their NFV/SDN business cases to increase their competitive advantage explore video services next, followed by IoT and M2M services, in addition to the three business cases highlighted above. Figure 1: Summary of key NFV/SDN service-based business cases: enterprise and residential vcpe-enabled services, and VoLTE using vims Enterprise vcpe services Key driver Grow revenue Residential vcpe services Key driver 47% USD1.4 billion New revenue from NFVand SDN-enabled services Cost savings per enterprise site per year USD1.34 billion Net cost savings from operational efficiencies Cost savings per household per year 5% ~4 p.p EBITDA increase 5% Accelerated upsell The infographic Cost should fit in this area. Use this grey box as a guide. 82% savings VoLTE with vims Key driver Cost savings Next services 33% vims net cost savings from: 45% capex 10% savings Video with vcdn opex savings IoT/M2M with vepc Source: Analysys Mason 4

5 Revenue (USD billion) NFV/SDN business cases: prioritise vcpe-enabled services and VoLTE/vIMS; then video and IoT services CSPs are still uncertain of the minimum NFV/SDN investment required for positive business benefit, which is slowing spend in the market A business case-led, phased approach (rather than a big bang approach) historically leads to successful transformation. 1 Almost all CSPs that we have spoken to over the last 18 months are seeking validation of NFV and SDN business cases, including CSPs that have launched limited commercial services. Most of the business case benefits such as service agility, capex and opex savings, as well as time-to-market benefits, are still speculative according to most CSPs. NFV and SDN technologies are maturing, but their business value is not well-quantified or understood. As such, the software-controlled networking (SCN) market spend is slow representing only 3% of the legacy telecoms hardware, software, and software professional services market in In 2019, clearer SCN business cases and mature NFV-/SDN-enabled services products will drive SCN spend to 9.7% of the legacy telecoms market. Investment in NFV/SDN deployments will continue to be slow until business value can be quantified clearly and goals are attainable within a 3 5 year period. As a result, smaller CSPs are using a wait-and-see approach in the hope of being fast-followers behind Tier-1 CSPs. 1 For further details, see Analysys Mason s Lost in transformation: increasing rewards and reducing risks in systems transformation initiatives. Figure 2: Legacy telecoms hardware, software and services, compared with software-controlled networking (cloud, NFV and SDN) market revenue worldwide, CAGR Legacy % Software-controlled networking NFV/SDN drivers begin to outweigh the inhibitors % Source: Analysys Mason 2 Legacy revenue excludes traditional hardware services. This data is from Analysys Mason s Telecoms software professional services: worldwide forecast and Software-controlled networking: worldwide forecast reports. 5

6 We have developed several detailed 5-year business cases for vcpe and vims use cases using a services-based perspective NFV and SDN business value varies from service to service, and the most successful of these is enterprise vcpe-enabled services. We have developed three 5-year business case scenarios. 1 Enterprise vcpe-enabled services for SDN-enabled advanced connectivity services and NFV-enabled value-add services. For this, we used a composite Tier-1 CSP in a developed market that migrates ~ sites and adds ~ new sites. Residential vcpe-enabled services for upsell from double- to triple-play services, and broadband and digital TV upgrades. This was prepared for a composite Tier-1 CSP in a developed market migrating about 17million residential households. VoLTE using a vims for voice services, with call continuity handover to existing 3G networks. This is a comparison business case of a physical and virtual IR.92 IMS deployment with Single Radio Voice Call Continuity (SRVCC). Rich Communications Services (RCS) and WebRTC are excluded. We have also developed a high-level architecture for each business case to guide the cost models for each deployment. Market trends indicate that CSPs can also gain potential business value from NFV- and SDN- enabled fixed and mobile video services first, followed by IoT/M2M connectivity and value-added services. 1 The vcpe business case includes legacy costs for non-migrated customers, but the VoLTE with vims business case does not. Both cases include a migration trend for all customers to an NFV/SDN-enabled services environment. Figure 3: Summary of the business case scenarios and related results detailed in this report Business cases Technology cost drivers Benefits drivers Return on Investment (ROI) Enterprise fixed services Self-care portal with zero-touch NFV/SDN provisioning Revenue benefits Cost savings First-mover advantage 3 NFV/SDN business cases Residential fixed services Automated and core network hosting of vcpe Cost savings Revenue benefits First-mover advantage VoLTE voice services vims compared with standard physical IMS with SRVCC Cost savings comparison Spectrum reuse and core network efficiencies of moving to VoLTE Next NFV/SDN business cases Video and IoT/M2M services Focus on vcdn and vepc architecture Revenue growth in IPTV High video traffic on mobile High number of connected devices 156% 49% 70% (from 12%) N/A Source: Analysys Mason 6

7 Recommendations 1 CSPs should take a services-based approach to ensure successful NFV/SDN business cases. CSPs that have identified new or existing services with revenue-generating and cost-saving potential can ensure that the related NFV/SDN business cases produce business value within a 5-year period. For example, Orange Business Services deployed its Easy Go Network vcpe-enabled service for the small- and medium-sized enterprise (SME) market in France. Similarly, our data shows that video services can help fixed CSPs to increase IPTV revenue, while IoT and M2M services present new revenue potential for mobile CSPs. 2 CSPs should use NFV/SDN implementations as transformational phases towards a common, flexible and scalable vngn architecture, including their vngn-oss architecture. 1 CSPs that are under pressure to increase revenue and stay competitive tend to implement new technologies and services on a case-by-case basis. However, this approach leads to multiple silos that require large-scale transformation at a later date. CSPs should deploy, operationalise and manage new NFV-/SDN-enabled services on a common, flexible, scalable reference architecture to reduce if not avoid future costly large-scale transformation projects. 3 New entrants and smaller CSPs can use specific services-based business cases to challenge if not overtake Tier-1 CSPs in markets where Tier-1 CSPs traditionally dominate. Smaller CSPs are taking a wait-and-see approach to NFV and SDN in the hope of being fast-followers behind Tier-1 CSPs. However, our business cases can be scaled to benefit any size of CSP. NFV- and SDN-enabled services are a significant opportunity for incumbent CSPs to strengthen their top and bottom lines, and also for new entrants and market challengers to increase their market traction through service differentiation and competitive pricing. 1 vngn-oss: an architectural framework for virtual network management and orchestration - See more at: RMA07/ 7

8 CONTENTS EXECUTIVE SUMMARY vcpe BUSINESS CASES: FOR ENTERPRISE AND RESIDENTIAL SERVICES USING vcpe AND SDN vims BUSINESS CASE: FOR VoLTE NEXT BUSINESS CASES: VIDEO AND IoT SERVICES USING vcdn AND vepc APPENDIX ABOUT THE AUTHORS AND ANALYSYS MASON 37

9 About the authors Glen Ragoonanan Principal Analyst) is the lead analyst for Analysys Mason s 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 reengineering, 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 Software Controlled Networking, Service Delivery Platforms, Network Orchestration and Service Assurance programmes. He started his career in the telecoms industry with a graduate role at a leading telecoms operator, before joining Analysys Mason in late 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). 38

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