We are getting a lot of questions about Network Functions Virtualization (NFV)—

  1. How big is the market?
  2. How do we see it impacting the equipment manufacturers?  The telecom operators?
  3. When and where’s the impact?  What do we watch for?

Our analysts met with a number of telecom operators over the past few months and two things are clear:

  1. Operators are very interested in NFV as a way to lower capital and operational costs, and to speed up the delivery of services.
  2. The operators we met with (among the largest globally), are in the exploration stage; to date, none have used NFV to deploy services.

The effect of NFV on the telecom equipment markets today is close to nil, but we expect the impact from NFV, whether hardware+software or software only, to increase gradually over the next five years.

One thing that is certain about NFV is that it is an initiative being driven by the end customer.  From the introductory white paper to the formation of the NFV Industry Specification Group, network operators are clearly driving this movement.  I’ve been working in and analyzing the networking industry for over 20 years now, and most new technologies have been driven by the equipment manufacturers.  One exception—back in the late 1990s when Ethernet switches became available at 100 Mbps speeds, user demand was like wildfire and the market shifted from 10 Mbps to 100 Mbps in less than one year.  With NFV, the end customer is driving manufacturers to innovate.

Shin Umeda on our team is spearheading an Advanced Research Report on NFV with the collaboration of our other analysts.  He is diving into the effects of NFV on the equipment markets that Dell’Oro Group tracks; from mapping NFV to the OSI model and equipment markets, to assessing the implications of NFV on manufacturers.  In other words, of the $80 B revenues manufacturers recognized in 2013 for equipment deployed in operator networks, what portion will be cannibalized or augmented by NFV.

This bottom-up approach will enable us to estimate the degree to which NFV is complementing or cannibalizing the telecommunications and networking equipment markets segment-by-segment, manufacturer-by-manufacturer.


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Tam Dell'Oro

Posted by Tam Dell'Oro on February 6, 2014

About Tam

Tam Dell’Oro is the founder and president of Dell’Oro Group, a research and consulting firm that specializes in business planning and strategic competitive analysis in the networking and telecommunications industry.