Network Cloud Infrastructure Market

What's New in This Release?

1) New Segments, Technologies, and Markets Covered:

This iteration of ABI Research's Network Cloud Infrastructure Market is an update to the previous version (published in 2Q 2020) and includes a revenue breakdown of a new delivery type, namely Network Functions Virtualization Infrastructure (NFVi) hardware. Furthermore, regarding the software delivery type, ABI Research takes a focused approach in this iteration to estimate only application software for the core network, not including platform software. In addition, ABI Research revisits revenue for core and cloud NFVi in line with the broader macroeconomic and political global events. More specifically, the following events have had an impact on ABI Research’s revenue model:

• Geopolitics and a volatile macroeconomic environment are creating a level of uncertainty in the cloud infrastructure market. Consequently, CSPs continue to scrutinize technology ownership costs and Return on Investment (ROI) to shield margins of existing revenue streams.
• Along the same lines, the industry continues to acknowledge the disruptive promise of cloud/software models with an eye on reducing operational complexity and lowering costs. In fact, the cloud continues to be a key driver of network change, both from the supply and demand sides.

As a result, there is a modest growth rate in the cloud infrastructure market for overall cloud and Network Functions Virtualization (NFV) hardware revenue. On a global level, ABI Research expects to see an overall Compound Annual Growth Rate (CAGR) of 5% to 6% up to 2027 for core network application software; this is only for Mobile Broadband (MBB) and does not include enterprise domain and/or edge deployments.

ABI Research expects to see a significant increase in professional services for the forecast period. That is because there is a requirement for services across the board to manage the new technology rollouts before the professional services market comes back to normal level. The overall CAGR for professional services is expected to be around 12%. See below for key trends that are driving that growth in the cloud infrastructure market, but also visit the reports in the additional reading references section.

2) Update on Market Dynamics:

• Ecosystem Disaggregation: Ecosystem disaggregation raises several challenges. For example, in 5G networks, if core networks and base stations are disaggregated, then they must be reaggregated for performance, security, and lifecycle management. This goes beyond the traditional interoperability supported by The 3rd Generation Partnership Project (3GPP). Open Radio Access Network (Open RAN)-compliant networks will have to coexist with non-Open RAN-compliant parts, much like Cloud Radio Access Network (C-RAN) and 5G Core (5GC) need to coexist with purpose-built hardware, at least in the early stages of adoption. The challenge is exacerbated by mazes of partnerships, and a raft of vendors and Communication Service Providers (CSPs). The process of disaggregation is reciprocal with a reaggregation/integration effort required to achieve interoperability and to manage operational costs. This is reflected in the cloud infrastructure market forecast for the professional services delivery type.
• Software Grows in Importance: Software is growing to be a key dimension for the industry. For example, 5G is the first "G" in the telecoms industry that paves the way for CSPs to operate and work solely in the software layer. Consequently, cloud infrastructure market vendors are increasingly supporting open interfaces, cloud platforms, and open software architectures. Ongoing adoption of the cloud and software is introducing significant changes to networks. For CSPs specifically, open-model elements associated with cloud computing, multi-vendor network deployments, new technologies, and expanded business scopes are significantly driving the need for services and integration. Furthermore, ongoing cloudification of telco equipment marks a gradual departure from network functions implemented as elements on dedicated hardware, to software instances running on cloud infrastructure. Again, this has been reflected in the forecast for software and hardware delivery types, as well as for Virtual Network Function (VNF)/Cloud-native Network Function (CNF) revenue breakdowns.
• Ongoing Adoption of 5GC/5G Standalone (SA): There are, to date, about 24 5GC networks live in a production environment. Commercial cloud infrastructure market opportunities that are expected to come from ongoing adoption of 5GC networks are 5G network slicing, extended 5G coverage, time-critical communications with Ultra-Reliable Low Latency Communication (URLLC), enhanced end-user experience, and much quicker access to data. CSPs are taking different routes to deploy 5GC based on their existing investments. Some CSPs are introducing 5GC by placing CNFs as an overlay to existing Evolved Packet Core (EPC). Others start with cloud-native container functions for 4G and 5G Non-Standalone (NSA) before they introduce 5GC. With respect to regional dynamics, the Chinese market is very aggressive where 5GC dominates. For example, 75% of 5G subscribers in China are already on 5G SA. With ongoing adoption of 5G SA, ABI Research expects sales from traditional portfolios (Physical Network Functions (PNFs)/VNFs) to wane in the coming years. Though there are still many network functions in physical formats (i.e., PNFs), new contracts are almost all for virtualized functions and, in some cases, container based. 5GC stands to be a key driver of virtualized deployments.

3) Additional Reading and References:

• “The Role of System Integrators in a Horizontally Stratified Telco Ecosystem” (IN-6464, https://www.abiresearch.com/market-research/product/7780406-the-role-of-system-integrators-in-a-horizo/)
• “The Prospect for a Services-Led Model in Telecoms” (IN-6404, https://www.abiresearch.com/market-research/product/7780192-the-prospect-for-a-services-led-model-in-t/)
• Moving Network Functions from Telco Cloud to Public Cloud (PT-2637, https://www.abiresearch.com/market-research/product/7781024-moving-network-functions-from-telco-cloud-/)
• Telco Cloud Deployment Strategies (AN-5369, https://www.abiresearch.com/market-research/product/7779099-telco-cloud-deployment-strategies/)
• 5G Next-Generation Core and Service-Based Architecture (AN-4902, https://www.abiresearch.com/market-research/product/1031878-5g-next-generation-core-and-service-based-/)
•  “Nokia to Offer Network Slicing for 4G and 5G by This Summer” (IN-5768, https://www.abiresearch.com/market-research/product/7778138-nokia-to-offer-network-slicing-for-4g-and-/)

Methodology

Network Cloud Infrastructure Market Forecast:

This report provides market data for packet core network software elements in 4G and 5G mobile networks. The report also includes revenue for NFVi hardware for compute, storage, and network. ABI Research also provides cloud infrastructure market sizing for professional services. Widespread cloud computing adoption introduces significant potential for changes to networks. For networks specifically, key reasons driving the need for professional services are open-model elements, multi-vendor networks, new technologies, and expanded business scope for CSPs.

The scope of this cloud infrastructure market forecast report includes MBB only; it does not include the value at stake from the enterprise domain. Within the scope of packet core and cloud NFVi, the report provides a breakdown for VNFs and CNFs. Related to VNFs and CNFs, the report attempts to provide a breakdown for core network application software for both EPC and 5GC.

Outline of Methodology:

• Input from the Market: ABI Research leverages input from the cloud infrastructure market, including opinions and judgment on growth rates from executives across technology suppliers and CSPs. Datapoints obtained from the market also include breakdowns for the delivery types considered in this forecast, namely NFVi hardware, application software for core networks, and professional services. The forecast draws on research interviews targeting companies that are expected to play a key role in the 5GC and telco cloud market with their network virtualization and cloud-native telco solutions. The interviews conducted allow ABI Research to gain access to vendor-specific information on products, regional revenue for hardware, software and services segments, technology drivers, and pace of adoption.
• Input from Internal and Secondary Sources: ABI Research gathered further secondary information from vendor financial reports and company and product portfolios, among others. Secondary data enable ABI Research to better estimate growth rates and cloud infrastructure market size. ABI Research also leverages in-house expertise to gain further insights into the trends and evolution of 5G, and the adoption of cloud-native technology. Furthermore, ABI Research leverages existing revenue estimates based on Virtual Evolved Packet Core (vEPC), 5GC, and Virtual Customer Premises Equipment (vCPE) as a starting point for 2022.
• Assumptions Made for This Forecast: ABI Research uses a number of assumptions to determine the cloud infrastructure market size for 2022 as a starting point. Chief among them are informed assumptions on CAGRs for NFVi hardware, core network software, and professional services. Key assumptions also include revenue allocation for Virtual Machine (VM)-based VNFs and container-based CNFs.

Segmentation:

Revenue Breakdown by Delivery Type: ABI Research applies a breakdown for three key delivery types across all four markets under consideration. By and large, ABI Research expects very modest growth for traditional portfolios of hardware and virtual elements in core networks for MBB. This version of the cloud infrastructure market report does not include enterprise and edge markets.

Delivery types considered for this report are as follows:

• Software: Licensed software (VNF, CNFs) for EPC and 5GC network only for CSPs MBB business.
• Hardware: Core network and cloud and NFVi (compute, storage, and networking).
• Professional Services: Professional services include all software- and hardware-related services that are not explicitly tied to cloud infrastructure market software products.

Functional Segmentation:

In general, the majority of the CSP community is still attached to the virtual world, so VNFs in VM format. For the forecast period under consideration, voice will continue to be the anchor in the virtual world, whereas packet core stands to drive CNFs in containers. A great deal of PNFs remain in the existing installed base, so cloud infrastructure market vendors will continue to support PNFs, VNFs, and CNFs for some time to come. Cloud-native elements will, however, experience strong growth driven by 5G SA. According to Network Equipment Providers (NEPs) in the cloud infrastructure report, new contracts are all for virtual elements and, in some cases, cloud-native.

The network cloud market by component type is segmented as:

• VNFs: A VNF can be viewed as a software instance running on a dedicated commodity hardware.
• CNFs: A CNF can be viewed as a virtualized/cloud-native function instantiated on an appropriate platform, e.g., a cloud infrastructure typically provided by infrastructure vendors or other cloud infrastructure market providers.

Core Network Segmentation:

All new core network deployments, including SA mode, have been in virtual forms. In fact, even for expansion contracts of 4G core networks, including 5G NSA mode, many CSPs chose virtualized core networks to expand the existing capacity. That also ensures smooth evolution to 5G SA.

The network cloud infrastructure market revenue is also segmented by core network:

• EPC: The core network for 4G, EPC elements are architected to be implemented on physical, point-to-point hardware interfaces.
• 5GC: 5GC is designed from the outset to natively introduce three new significant advancements: a service-based architecture, native support for network slicing, and control plane/user plane split.

Revenue Acquisition:

Revenue in this analysis is to suppliers offering telco network equipment and core network application software, technology vendors for Commercial Off-the-Shelf (COTS) hardware, System Integrators (SIs), and professional services firms offering services. At the moment, cloud infrastructure market technology suppliers note that no two networks look the same. CSPs adopt different choices for voice IP Multimedia Subsystem (IMS), packet core data, Subscriber Data Management (SDM) element, and cloud infrastructure. CSPs deploy different configurations for the core network and infrastructure layers, so suppliers face some challenges in applying consistency to network operations.