RESEARCH WHITE PAPER SOFTWARE-CONTROLLED NETWORKING: UNDERSTANDING THE IMPLICATIONS OF NFV AND SDN FOR OPERATORS DANA COOPERSON AND GLEN RAGOONANAN analysysmason.com
About this report This report provides a summary of: the drivers that are pushing communications service providers (CSPs) toward a radical restructuring of their network operations the factors that will inhibit the pace of change what the evolutionary path, which will require at least a decade, will look like. It includes recommendations for CSPs and their infrastructure providers. The analysis is based on Analysys Mason s internal research, including our Cloud computing, NFV and SDN: worldwide market sizing and forecast 2014 2018, which provides a 5-year forecast of revenue data for three SCN markets split by: hardware, software and services worldwide and by four geographical regions. The forecast is available at: www.analysysmason.com/scnforecast. KEY QUESTIONS ANSWERED IN THIS REPORT Why is the communications industry buzzing about software-controlled, virtualised networks, and specifically about software-defined networking (SDN), network function virtualisation (NFV) and cloud computing? What are the drivers and inhibitors along the path to software-controlled network (SCN) evolution? In which order are network functions and elements likely to be virtualised during the decade-long journey to SCNs? WHO NEEDS TO READ THIS REPORT Business leaders at CSPs who have heard all the NFV/SDN hype and want a summarised, non-technical view of why they should pay attention. Infrastructure vendors who want more insight into their customers business imperatives and why the path to SCNs will be long. Other industry players (for example, financial firms) that need an overview of industry dynamics to understand the investment decisions faced by CSPs and their vendors. 2
CONTENTS EXECUTIVE SUMMARY MARKET DRIVERS MARKET INHIBITORS MIGRATION PATH APPENDIX: FURTHER READING ABOUT THE AUTHORS AND ANALYSYS MASON 3
Cumulative costs Software-controlled networking: understanding the implications of NFV and SDN for operators Executive summary CSPs competing in the digital economy must master the shift to cloud computing, NFV and SDN, which represent the most significant shift in communications networking in 50 years. Figure 1: Illustrative comparison of cumulative costs of various approaches to network virtualisation Business leaders at CSPs need to understand how virtualised and software-controlled networking can help them compete in the digital economy by reducing costs, increasing responsiveness and creating more-innovative services. However, they must also be realistic about the magnitude of the changes required to make such a dramatic operational shift. Harnessing virtualised and software-controlled networking to improve network operations requires a solid understanding of the business drivers and the benefits that a proper implementation can bring, a realistic view of the impediments to rapid deployment of the new technology and a sense of the likely path forward. As CSPs embark on what is likely to be a decade-long journey, they must thoroughly consider what services or operations will benefit most from virtualisation, how aspects of their business model and operation must change to maximise the benefits and on what basis they will do path corrections along the way. Vendors intent on capturing a piece of what Analysys Mason estimates to be a USD13.1 billion market in 2018 for SCN hardware, software and services must be prepared to help customers quantify and realise the business benefits of SCNs. Initial capex savings + Service Traditional physical network Time Service agility approach for vngns Service agility cost savings agility revenue benefits will be additional to the cost savings highlighted Silo virtualised network Source: Analysys Mason 4
Recommendations 1 The technology is the easy part. Implementing SCNs and maximising business benefit will require significant planning and a healthy appreciation of what it means to overhaul network operations. SCNs will require an overhaul of network operations from top to bottom that is, from planning and procurement to operations and maintenance. The transition to an SCN will be arduous, but a radical shift is needed to meet the customer and competitive demands of the digital economy. Operators should look to vendors and vendor coalitions for solutions rather than point products because there are so many pieces to put in place. 2 A cap and grow overlay deployment is the only approach to SCNs that is financially feasible. SDN and NFV products for CSPs are immature: proofs of concept and performance must be tested and technology rolled into the network according to business priorities and what is deemed an acceptable level of support risk. CSPs must prioritise investments and replace established network assets over time as their useful life comes to an end. Operations support systems must be able to manage a hybrid network of virtual and physical elements comprising those that can be centrally and automatically controlled and those that cannot. 3 Vendors looking for a share of the USD13.1 billion SCN market must focus on reducing inhibitors and enhancing benefits. We estimate that it will be a decade before there are substantial NFV and SDN deployments. Vendors can drive market development by helping customers to quantify business cases (particularly those focused on service agility and innovation, rather than opex improvements), test proofs of concept, reduce the risk associated with the move to open networks through standardisation and integrate end-to-end solutions in partnership with other vendors. 5
CONTENTS EXECUTIVE SUMMARY MARKET DRIVERS MARKET INHIBITORS MIGRATION PATH APPENDIX: FURTHER READING ABOUT THE AUTHORS AND ANALYSYS MASON 6
Changing competitive and customer requirements are driving the urgency behind telecom s shift to SCNs Figure 2: Timeline for the development of communications networking technology Analogue to digital Asynchronous to synchronous (for example, PDH to SDH) Physical to virtual Integrated control and data plane to decoupled control and data plane 1960s 1980s 1990s 2000s 2015+ Copper to fibre Fixed narrowband to mobile broadband Synchronous to IP SDN to IP/MPLS/Ethernet The days of telecoms as a closed, monopoly market with its own, unique standards and processes ended with the commercialisation of the Internet. It has just taken two decades for the business consequences to become apparent. Competition can and does quickly come from anywhere for services targeted towards both enterprises (for example, Amazon Web Services) and consumers (such as Skype and WhatsApp). No service revenue stream voice, video or data is untouchable. Consumers often identify with their device and app providers (for example, Apple for iphone and itunes) rather than their connectivity providers. Good networking ideas (for example, TCP/IP and virtualisation) can and do come from outside the walled garden, and hold promise to help CSPs control costs, increase revenue and fight back against digital media competitors. Software-controlled and virtual networks represent the most significant shift in communications networking for more than 50 years, but drastic change in network operations is needed if telcos are to move beyond being CSPs to being digital media players. 7
The business drivers behind CSPs SCN investments are strong; cost optimisation is the easier goal, but revenue growth must follow Figure 3: Four main drivers for investment in software-controlled networks over the next 5 years Driver Opportunity Timeframe Cost optimisation (both capex and opex) Lower unit cost through improved infrastructure flexibility space and power density, and operations simplicity (for example, remote configuration saves truck rolls), as proven with cloud models. Fundamental, ongoing driver for SCN. Low-power, high-performance NFV and SDN hardware should be mainstream after 2016. Network systems and technology refresh Service agility Cap legacy network, control and management elements and expand using virtual elements to support new service priorities and business drivers. Faster creation and launch of new services to decrease time to revenue and compete with digital economy rivals. NFV elements, starting in the mobile core, are likely to mature within 3 years, driven by LTE roll-outs. SDN spending will continue to focus on data centres through at least 2018. This is a stated goal for operators, but investments over the next 1 3 years are likely to focus on cost optimisation because it is easier to justify. Increasing focus over time New potential revenue from innovation Cloud-based on-demand delivery models suggest customer interest in on-demand network services, but the technology to provide such services economically and at scale has been lacking. By 2016, virtual and software-controlled networking should have matured to the point that new service innovation will drive spending on cloud and SDN solutions in a virtuous circle. Source: Analysys Mason 8
CSP business benefits promise to be significant, although quantifying them will require time to evaluate solutions and test proofs of concept Figure 4: Benefits of deploying software-controlled networks Category Quantifiable benefits Opex reduction Headcount reduction Reduced OSS development, integration and maintenance costs Reduced time and costs for operational processes Hardware savings Service agility Deferred hardware spending Lower hardware costs for general purpose, standardised infrastructure Reduced time to market for traditional and new services Reduced service development times Reduced management overheads over the service lifecycle Increased service innovation and flexibility Increasingly difficult to quantify accurately Revenue enhancement Earlier revenue as a result of reducing the time to market New revenue from services that were not possible without virtual network resources Source: Analysys Mason 9
For vendors, SCN opens up market opportunities for hardware, software, and related services that could generate USD13.1 billion by 2018 Hardware Figure 5: SCN market opportunity segments in cloud, NFV, and SDN NFV and SDN will require new and different carrier-grade hardware that is analogous to high-performance server chassis. SDN-enabled hardware will require more than adding an OpenFlow interface to an established box. Virtualised network functions (VNFs) will need to do more than simply run on virtualised servers. Software SCN markets Total market 2018: USD13.1 billion Market opportunities 5.2 Services Sub-segments Transformation Co-existence Integration Software, rather than hardware, will present the highest revenue opportunities for functions such as virtualisation (network OS, hypervisors), OSS (SDN controllers, orchestrators and managers), NFV components (such as PCRF), high availability, integration adapters and security, among others. Services 7.6 3.0 Cloud computing SDN 4.8 Software Hypervisors NFV components OSS The three main professional service opportunities associated with NFV and SDN are: transformation or migration to an NFV and SDN environment management of a complex combination of SDN and traditional networks (including legacy), which will co-exist 2.4 NFV (Figures in USD billion) 3.1 Hardware (Figures in USD billion) Core Distribution Access integration of different multi-vendor technologies for OSS, BSS, SDP, NFV, SDN and other competitive emerging technologies. Source: Analysys Mason Note: The sum of individual forecast figures may not equal the totals because of rounding. 10
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Cost (capex and opex) Software-controlled networking: understanding the implications of NFV and SDN for operators SCN is urgent and important, but far from quick and easy: SCNs will develop slowly because of the scale and scope of the shift CSPs will need to continue to provide a wide range of network services, sustaining assets that are not fully depreciated while they test and verify SCN alternatives. A cap and grow investment approach is the only plausible option for supporting established services while mitigating financial, performance and technical risks. The business case for each investment will likely be addressed individually, but CSPs need to have an overarching vision and plan. Additionally, training and hiring for new skills must be an integral part of the investment plan. Figure 6: Illustrative comparison of capital and operational expenditure required to sustain or replace network equipment OSS standards, security and procurement must shift. 1 End-to-end orchestration standards for NFV are working their way through ETSI and the TM Forum. The goal is to develop open and dynamic application programming interfaces (APIs) to expose standardised network management functions at all layers of the NFV architecture. New approaches will be required to ensure that networks remain secure as they become more open. CSPs and vendors will need to reassess established pricing models and procurement processes to ensure that CSPs can reduce costs and vendors can differentiate their products and services and realise a reasonable ROI. 1 See Glen Ragoonanan s article Network Virtualization & SDN World 2014: CSPs confirm Analysys Mason s NFV and SDN forecasts. Sustain Time (years) Replace Source: Analysys Mason 12
It will take 3 4 years to overcome all of the inhibitors to SCN deployment, despite strong business drivers Figure 7: Four main inhibitors to investment in software-controlled networks over the next 5 years Inhibitor Threat Timeframe Product immaturity NFV and SDN products are just being launched. It will take time to develop features and capabilities, pricing and procurement strategies, deployment scenarios, methods of procedures and OSSs/BSSs, and to verify that 99.999% service uptime requirements can be upheld. The maturation process is likely to take at least 3 years, which will dampen short-term spending on NFV and SDN products in the telecoms sector. Lack of assured business cases It is easiest for CFOs to justify an investment on capex avoidance or reduction grounds. For SCNs, opex reduction and new revenue are likely to drive business cases. CFOs will require hard evidence before committing funds particularly because the total expense may rise during the transition to SCNs. The transition period from legacy networks to SCNs is likely to take a decade or more, during which physical and virtual domains must coexist and interact, and be managed as a hybrid. CSPs expectation of a return on non-depreciated assets New technology initiatives (for example, LTE and FTTx) have 10-year investment recovery cycles. SDN/NFV elements are unlikely to replace assets before they are fully depreciated. Replacement with NFV/SDN-capable assets is likely to grow from 2018 onwards. The risk associated with fully open source solutions The industry is debating the use of open source software for NFV and SDN implementation in CSP networks, its likely impact on security and network management, and what standards may be needed. CSPs are trying to encourage open source software through initiatives such as the Open Platform for NFV Project (OPNFV). It took 3 4 years for open source solutions for data centre SDNs to achieve productisation. CSP NFV/SDN will take at least as long (that is, it will be 2017 or later). Source: Analysys Mason 13
A multi-year organisational transformation will be required to maximise the benefits Figure 8: Critical success factors for realising the benefits of software-controlled networks Benefit Critical success factors Opex reduction Hardware savings Service agility Revenue enhancement Ensure process automation is intrinsic to all OSS implementation, to reduce headcount Consolidate or rationalise OSS, and increase integration to produce a simpler architecture Minimise parallel running of systems and processes; replace or retire legacy systems where possible Standardise on certified hardware and software that have open interfaces and interoperability Modernise operations to converge network and IT planning, roll-out, operations and maintenance Virtualise as many network functions as possible to attain economies of scale on the costs of the added virtualisation software layer Standardise on hardware to drive down costs this is the principle of NFV Invest in software to automate and maximise sharing of network resources Have an overarching service agility framework for augmenting the network with VNFs, increasing OSS automation, and developing vngn-oss requirements Commit to retraining the organisation to be more software-oriented Foster and reward service innovation Move to closed-loop service lifecycle processes where possible Consider new business models and opportunities: enter industry verticals or launch services that require virtual network resources, such as private, public or hybrid network cloud services Explore service innovation with third parties to compete more strongly in the customer ecosystem and add new potential revenue streams Source: Analysys Mason 14
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Revenue (USD million) Software-controlled networking: understanding the implications of NFV and SDN for operators The full impact of CSPs investment in virtualisation will not be apparent for at least 10 years We expect that CSP spending will change more significantly in 5 10 years rather than during the next 5 years, as new products come to market and CSPs pace new investment realistically. CSPs spent USD101 billion on telecoms hardware worldwide in 2013. NFV and SDN will begin to erode this revenue during the next 10 years, but particularly after 2018. Figure 9 shows SCN spending by technology type. Of this total, NFV and SDN hardware revenue will be USD8.6 billion and USD9.9 billion, respectively, in 2023. Figure 9: Software-controlled networking spending by market segment, worldwide, 2013, 2018 and 2023 NFV spending will grow more quickly than spending on SDN and cloud computing because: SDN spending will be led by data centre providers (DCPs), which will use more-mature products and require less services investment than CSPs will require for NFV new vngn-oss architecture will boost CSPs NFV spending as they transform their networks to increase their service agility CSPs cloud computing spending is quite mature and will not increase at a higher rate than IT data centre spending worldwide. Cloud computing 3910 7635 12051 NFV 181 2433 29149 CAGR 12% 66% SDN 319 3001 20112 51% Source: Analysys Mason 16
CSP virtualisation began with cloud computing in the data centre, and NFV and SDN element roll-outs will ramp up through 2020 and beyond Figure 10: Forecast of virtualisation events that will drive SCN adoption in the CSP environment, 2013 2020 Enterprise IT and data centre virtualisation: cloud computing NFV product development of policy control, ISP, IMS, EPC and enodeb First commercial deployments of NFV policy control, ISP and IMS core First commercial NFV and CSP SDN deployments in mobile: EPC, Gi interface, enodeb and IP RAN Cloud computing and NFV become more mainstream CSP SDN gains maturity OSS demand for virtualised, IT and telecoms networks 2013 2014 2015 2016 2017 2019 2020 Trials of NFV: policy control, ISP and IMS core Increase in the number of CSP SDN trials in mobile and transport networks Increased transformation to next-generation virtualised networks (cloud, NFV and CSP SDN) begins Decreasing rate of spending in cloud computing (data centre) Increasing rate of spending in NFV Increasing rate of spending in CSP SDN Note: This timeline is based on industry feedback gathered by Analysys Mason. We expect the outlook for these technologies to change as they mature. Source: Analysys Mason 17
Revenue (USD million) Software-controlled networking: understanding the implications of NFV and SDN for operators SDN overlay solutions will be more popular with CSPs than with DCPs because overlay is a proven and less-disruptive CSP migration strategy Figure 11: SDN revenue by SDN deployment type, worldwide, 2013 2018 Enterprise SDN (DCP) 122 181 265 433 755 1170 Enterprise SDN (CSP) 91 134 195 319 542 810 CSP SDN 106 162 237 388 639 1020 CAGR 57% 55% 57% DCPs particularly Google are seeking commercial off-the-shelf (COTS) SDN hardware and software solutions that do not require them to buy vendor services, because network management is not their core focus. Almost all SDN solutions are SDN software overlay solutions over established or new SDN-enabled hardware. DCPs recognise that this adds an overhead cost layer, which they do not favour. However, CSPs are accustomed to using overlay (or cap and grow ) solutions to ensure that services are not disrupted. We expect CSP SDN revenue to grow at the rate of enterprise SDN revenue through 2018, even though CSP SDN solutions have been lagging behind by 2 3 years. Revenue-generating SDN WAN solutions, such as cloud bursting and zero-touch dynamic VPN services, will drive CSPs and suppliers to increase overlay SDN deployments within the next 5 years in CSP transport (distribution) networks. We forecast that enterprise SDN spending by DCPs and CSPs will continue to be greater than CSP SDN spending even after 10 years (in 2023), given the size of the network installed base, the use case-based approach to deployments and competition for infrastructure investment spending. Source: Analysys Mason 18
Increasing number of virtualised network functions Software-controlled networking: understanding the implications of NFV and SDN for operators A new vngn-oss architecture is the final sign of management maturity: VNFs will evolve over time and OSSs must facilitate the transition Milestones for OSS migration CSPs and vendors are working to identify VNFs that will bring business benefit. Network functions will be virtualised at different times, and may progress through the three key milestones at different rates. Some of the VNFs that CSPs have identified so far are: EPC, 1 IMS, PCRF, CDN, HSS, DNS, DHCP, firewalls, DPI/PCEF, Gi LAN network functions and CPE. 2 In the next 3 years, CSPs anticipate that vngn-oss will be advanced enough to enable the coexistence of physical and virtualised networks through OSS abstraction. Over the subsequent 5 years, CSPs expect to continue to gradually progress the development, implementation and rationalisation of their OSSs, in preparation for transforming to a consolidated, slimmer vngn-oss architecture that addresses OSS challenges and gaps to orchestrate the management of vngns. As a result, towards the end of the next decade, we can expect CSPs to be completing their migration to a vngn-oss that will manage the vngns and technologies that have emerged during the decade. Figure 12: Three key milestones for network virtualisation OSS maturity, with an indicative timeline 1 3 years 3 7 years Identification and virtualisation of network functions 6 10 years or more Coexistence with abstraction to established OSS Migration to a new vngn-oss 1 See Glen Ragoonanan, Shanthi Ravindran and Gorkem Yigit s Case study: SK Telecom tests virtualised evolved packet core to keep core network costs down. 2 See Glen Ragoonanan and Gorkem Yigit s Case study: Telefónica trials virtualised CPE in Brazil as it seeks to reduce the cost of its access network. Source: Analysys Mason 19
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Further reading Type Title Author(s) Link Comment Network Virtualization & SDN World 2014: CSPs confirm Analysys Mason s NFV and SDN forecasts Glen Ragoonanan www.analysysmason.com/nfv-sdnforecasts-jun2014 Forecast report Cloud computing, NFV and SDN: worldwide market sizing and forecast 2014 2018 Glen Ragoonanan www.analysysmason.com/scnforecast Strategy report Preparing for an OSS architecture that can support NFV, SDN and established technologies Glen Ragoonanan www.analysysmason.com/networkvirtualisation-apr2014 Strategy report Next-generation OSS is critical to delivering service agility in new virtualised networks Glen Ragoonanan and Mark H. Mortensen www.analysysmason.com/networkvirtualisation-feb2014 Strategy report Software-controlled networking framework: NFV and SDN are important for next-generation networks Glen Ragoonanan www.analysysmason.com/scnframework 2013 Case study SK Telecom tests virtualised evolved packet core to keep core network costs down Glen Ragoonanan, Shanthi Ravindran and Gorkem Yigit www.analysysmason.com/sk-telecomvepc-mar2014 Case study Telefónica trials virtualised CPE in Brazil as it seeks to reduce the cost of its access network. Glen Ragoonanan and Gorkem Yigit www.analysysmason.com/telefonicavcpe-brazil-mar2014 21
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About the authors Dana Cooperson (Research Director) is the research director for Analysys Mason's network-focused software research programmes. Her area of expertise is intelligent fixed and mobile network infrastructure. The key network infrastructure trends Dana focuses on include the integration of communications and IT assets and the drive towards software-controlled, virtual networking. Prior to joining Analysys Mason, Dana worked for 16 years as an analyst, consultant and research manager at RHK and Ovum on topics such as optical networking, IP/Ethernet services, software-controlled and virtual networks; cloud enablement; video optimisation; big data analytics; and professional services. Prior to becoming an industry analyst, Dana worked for 16 years in the communications industry. Glen Ragoonanan (Principal Analyst) is the lead analyst for Analysys Mason s Infrastructure Solutions, Service Delivery Platforms and Software-Controlled Networking research programmes. 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. Before joining Analysys Mason, Glen worked for Fujitsu, designing, delivering and managing integrated solutions. Glen is a Chartered Engineer and project management professional with an MSc from Coventry University. 23
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