ACG Research

ACG Research
We focus on the Why before the What

Tuesday, July 22, 2014

Demand for Security Solutions Driving Consistent Market Growth

The total available market for Worldwide security solutions is projected to increase from $16.3 billion to more than $25 billion by 2018 (CAGR 9.1 percent). Market growth is being driven across multiple segments by increasing complexity and sophisticated nature of security threats. Additionally, mobility, cloud and the evolution of the Internet of everything are changing the IT security landscape, creating opportunity for those vendors that present a multifaceted approach to protection.

ACG Research anticipates a further melding of the vendor and product landscape as security continues to cross over from discrete point solutions to all encompassing product portfolios. New and innovative solutions have and will continue to instigate a shift in how firms think about their security. This is particularly true when it comes to mobile device management. Increased mobile device penetration, bring your own device and consumerization of IT are driving the demand for sophisticated infrastructure to accommodate a mobile environment where employees have secure access to corporate data. ACG Research forecasts double-digit growth of more than 17% across this segment.

For more information about ACG's security services, contact sales@acgresearch.net.


Friday, July 11, 2014

Programmable Carrier Networks: A New Architectural Approach

Programmable carrier networks, a new, eclectic, emerging architectural approach, incorporate concepts such as SDN, NFV, shared mesh protection, path computation element protocol and cloud computing concepts and blends them with established transport, switching, routing and network management techniques. The objective of this merger is to overcome the barriers created by traditional network architectures that carriers are encountering as they try to accommodate high and volatile traffic volumes and unpredictable traffic patterns as well as respond to the innovative business models of cloud-based and OTT service providers.




mkennedy@acgresearch.net
www.acgresearch

Monday, July 7, 2014

IoT B2B Ecosystem: How Can SPs Retain Their Maximum Share?

The OneM2M joint standards groups partition the Internet of Things (IoT) ecosystem by access domain, network domain and application domain. Within these domains the service providers (SP), specifically wireless SPs, are in the network domain and are responsible for the operational and business system services of the devices (OSS/BSS), for example, SIM provisioning, monitoring and management of the device over the “air,” routing traffic from the device to backend systems and applications or to other devices in the network, billing and recording of device activity based on bandwidth usage or further analytics associated with the application deployed. In a legacy machine to machine (M2M) scenario the value chain for the SP was clear; however, with the new IoT ecosystem this and business models have changed. How can SPs obtain the most value and retain reasonable financial margins within today’s IoT ecosystem?

Traditional M2M Business Models
Established M2M business models, which are limited in scope and structured, were quite clear and the revenue share among the domains was evenly distributed and predictable. Leading SP network operation field specialists acknowledge that the device provider, network provider and the application provider each receive one-third of the revenue.  A customer would request a defined service, such as a fleet/asset tracking service, from the service provider who most likely had a purpose-built solution. Depending on the quantity of assets that needed to be tracked, the service provider would know precisely how many unintelligent devices and SIMs to purchase from his device supplier, servers from the network provider and software packages to order from the applications provider. The SP would be responsible for provisioning its custom OSS/BSS systems and application services and provide the management. The customer would pay for the devices and software licenses upfront and either pay the SP per connection or by bandwidth usage. The device and software vendors would require a maintenance fee, which the SP would pass on to the customer. This is now an obsolete business model.

Present M2M/IoT Business Models
In the new M2M/IoT ecosystem SPs’ role and business models have changed. According to Network specialists, the device vendor gets around 20 percent; the network provider gets 15 percent and the application provider gets 65 percent. The new enhanced M2M devices have advanced processors that make them more intelligent, aware and thus more valuable. Because of enhanced hardware and firmware these devices can be embedded with antennas that can speak directly to the internet via 3/4G cellular or via WiFi routers. In most cases the radio access portion of the network domain has not been upgraded (2G or 3G wireless) so the expense is less. SPs use OSS/BSS platform partners because the OSS/BSS layer must be enhanced to accommodate the intelligent access devices. Application layer services are leveraged between application platform providers’ partnerships. These providers employ their own device, storage, cloud suppliers and application designers. To compete SPs have to engage in various business arrangements and complex strategic alliances with equity interests and exclusivity clauses. The negative effect is revenue fragmentation; however, providers can charge the customer more and thus raise the overall average revenue per unit. In this fragmented and crowded environment, how can the SPs continue to earn their full value?

Service Provider-Centric Use Cases
To earn their full value in the M2M/IoT ecosystem, SPs have to select their verticals and use cases very carefully. What are the characteristics of a monetizable use case for SPs? Service providers must adopt use cases that require a highly managed infrastructure and within these verticals should be mission critical and/or life dependent as well as wireless connectivity. These use cases will warrant more liability and require more regulatory demands but will enhance the importance of the SP’s network. The SP will maintain the value in the IoT ecosystem and customers will pay premium for the enhanced quality service. The following are examples of service provider-centric vertical use cases:
  • Healthcare: Remote heart/lung/brain monitoring for patients in transit; remote surgical services (monitoring/surveillance)
  • Transportation: Fleet/Asset tracking services where environmental controls for cargo/livestock need monitoring; telemetry (driverless vehicles); highly critical vehicle diagnostic monitoring and proactive resolution services
  • Manufacturing: Airborne robotic devices; off-shore mobile device control and monitoring services
  • Utilities: SCADA monitoring and proactive purification services for gas, water, soil, etc.
  • Government: Surveillance of mission-critical items; disaster recovery bots
  • Telecommunications: Banking processes and monitoring in remote areas


Dennis Ward

Wednesday, June 11, 2014

Residential Broadband, Video Usage Drives Operators to Redesign Their Metro Networks

Residences' move from viewing broadcast TV to Internet TV and businesses' pervasive use of rich multimedia content and cloud services are forcing service providers to re-architect their metro networks. The resulting network designs are bringing network content and intelligence closer to end-users. Click here to find out why.

For more information about Michael Kennedy, click here. To read more articles, click here.



mkennedy@acgresearch.net
www.acgresearch

Tuesday, June 10, 2014

IoT In Perspective, Ready for Reality?

Kevin Ashton, cofounder of the Auto-ID Center at MIT that created the Radio Frequency Identification (RFID) global standard, is credited with the expression “Internet of Things,” envisioning a “system where the internet is connected to the physical world via ubiquitous sensors.” His vision in 1999 is not far from today’s reality. Technology has advanced to a point where almost anything can be “sensor-ized” to collect, store and transfer data. Interestingly enough, RFID tags were designed to categorize, itemize and quantify things. Hence the question, how big is the IoT market today?

Views in the market are that it is difficult to quantify simply because the concept is too broad and connections are hard to evaluate. Clearer explanations as to what a “connection” is within the IoT sector needs to be defined further. Nevertheless, some companies have generated numbers. Cisco made an attempt to embrace the concept within the explanation of the “Internet of Everything”. Using “Value at Stake” the worldwide market size was predicted to be $14.4 trillion in 10 years, where 45% or ~ $6,480 billion was attributed to machine to machine (M2M) connections. This is particularly interesting to service providers (SPs) because they will own these connections. If we analyze this number linearly, then for one year, the expectation for the worldwide M2M market size is about $648 billion.


Source: Cisco IBSG, 2013; Note: To make the numbers work, the actual IoE should be $14.160 trillion.

But what is the potential value per connection in a year? Revenue estimates for SPs and total cost of ownership (TCO) evaluations for customers are definitely of interest. The total number of M2M cellular connections last year was around 132 million. Thus: $648 B/1 yr x 1 yr/132M connections = $4,909/connection in a year (~ $409 per month).

Last year (August 2013) the top number of M2M connections for U.S. companies:

Service Provider
M2M Connections (Millions)
Revenue(M) (Yr: $4909/conn)
AT&T Mobility
14.7
72,162
Verizon
8
39,272
Sprint
3.3
16,199
T-Mobile
3.3
16,199

Therefore, if the potential values are in the correct order of magnitude for M2M, (not considering the CAGR sifts, etc.), then the increase in connections because of IoT will essentially bring increased revenue to SPs. Is that really true? Much of the margin depends on the revenue shared between the SP’s platform partners as well.

IoT Platforms: The M2M/IoT platforms that are being deployed—some have taken several years to develop—have several vendors within their ecosystems. Bigger SPs had to partner with these platform providers to enter the M2M/IoT market quickly. The following are platform providers for the major U.S.:

Service Provider
Platform Provider
Engagement Year
AT&T
Jasper, Axeda
2009, 2012,
Verizon
Zelitron SA, Qualcomm, nPhase, Axeda
2003, 2010, 2010, 2011
Sprint
Axeda
2010
T-Mobile (now part of Sprint)
Raco Wireless
2006

What kinds of business partnerships have the SPs made with these platform providers? What are the present revenue sharing models and who owns the customers in these scenarios? To what key verticals and monetizable use cases do SPs need to turn their solutions to maximize their profits within these partnerships? For example, what percentage of that monthly revenue of $409 actually goes to the SPs? Can a customer transfer between SP/PP solutions and expect a seamless experience? These are not new questions; however, the issues are still here and need to be explored again with fresh eyes since the technology and market landscape is changing.

For example, virtualization within the core of SPs; networks are giving new agility, efficiency and interoperability choices. Equipment providers such as Ericsson, Alcatel-Lucent, Juniper and Cisco are developing innovative software defined networks- and network fabric virtualization-based appliances in software and hardware to assist SPs in revolutionizing their core OSS/BSS delivery platforms and edge Radio Access Network facilities to rapidly and easily create solutions that can propel the managed M2M/IoT industry forward and fight off over-the-top competition.

What’s the bottleneck? It is not the technology but the ability of the industry to cooperate in normalizing the horizontal layer of the network (actually where the platform providers sit) to serve the verticals appropriately. One of the answers is to urge the standards bodies to more aggressively converge ideas toward this end. OneM2M, the Global Partnership developing standards for M2M communications enabling large-scale implementation of IoT, is in the process of spearheading this effort. However how are they doing with the specification normalization?

In reviewing the OneM2M Technical Report Doc # oneM2M-TR-0003-Architecture_Analysis_Part_2 it is clear that the seven Standards Developing Organizations are well on their way toward integrating a basic framework of functional elements that will prove invaluable in normalizing the playing field. These types of specifications will assist the platform and equipment providers technically so they can clearly see how to design solutions to help the SPs deploy more economical and simpler solutions to the market to effect better results or “outcomes.” The OneM2M 10th Technical Plenary committee met in Berlin, Germany, on 4/11/14 and confirmed that it will be releasing its initial complete specifications for IoT in August 2014.  



Dennis Ward

Monday, June 2, 2014

Optimizing the Network Edge with Juniper Networks MX Series 3D Universal Edge Router

Service providers are increasingly looking to optimize their network design and reduce operational complexity in order to minimize totalcost of ownership, contain operational risk, and reduce environmental impact. Traditionally, service providers use a variety of appliances to deliver and monitor services and ensure security; however, this approach becomes more inefficient, complex, expensive, and risky as network scale and service offerings increase. 

ACG Research compares network upgrades for two hypothetical operators. Operator 1 implements a traditional appliance-based edge network, and Operator 2 implements a converged edge network utilizing the Juniper Networks MX960 hosting both routing and services. Among other findings, the research establishes that the converged MX960 solution demonstrates up to 49 percent lower TCO and 64 percent lower environmental emissions than the traditional appliance-based service delivery method. 

Click here to download the TCO.

For more information about Michael Kennedy, click here. To read other business cases, click here.


mkennedy@acgresearch.net
www.acgresearch

Thursday, May 29, 2014

1Q Vendor Financial Index Announcement

ACG Research has released its 1Q Vendor Financial Index report, which delivers independent information about the sustainability of a vendor or company to help providers assess the risk of selecting the right vendor to meet their business requirements and to ascertain a risk level on the stability of the vendor regardless of technology innovations.


Low-risk vendors for the quarter are Adtran, Brocade, Cisco, and Juniper. Characteristics of low-risk vendors include strong revenue outlook, high operating margins because of sales, solid gross margin and expense discipline, low debt dependency, and high receivable efficiency ratio. Adtran’s growth continues with its international business increasing 56 percent year over year. The company posted strong performance in EMEA and Latin America, attributed to increased Broadband Access product sales). Brocade, which is focusing on efficiency, had the highest operating margin in the industry, 21.5 percent, increasing 43.8 percent quarter over quarter. Cisco’s US commercial and enterprise orders increased by 10 percent year over year. The company also posted a high operating margin, increasing 47.3 percent quarter over quarter. Juniper continues to pursue its restructuring plan, cost cutting initiatives and diversification of revenue with the goal of increasing efficiency in delivery of services and customer support.

Cyan, Ciena and ZTE are high risk, which is characterized by low inventory turnover ratio, revenue decreases and low value of equity to debt ratio. Cyan’s bottom line continues to be affected by cautious ordering patterns by its customers. The company, however, continues to enhance its Blue Planet SDN and NFV software platform, which is attracting positive attention from the industry. Although Ciena’s revenue continues to come from sales to a small number of service providers, the company’s partnership with Ericsson (for SDN products) should drive international revenues. ZTE’s revenue dropped 9.5 percent quarter over quarter; the company is focusing on sales of 4G infrastructure in China and international growth to drive revenue. 

For more information about ACG Research's Vendor Financial Index service or other syndicated and consulting services, contact sales@acgresearch.net.


Tuesday, May 27, 2014

Gains in Evolved Packet Core Segment in 1Q 2014 WW Mobile IP Infrastructure Market

Although the 1Q 2014 Worldwide Mobile IP Infrastructure market decreased to $1.1 billion, the Evolved Packet Core (MME, PGW, SGW, and PCRF) grew 45% q-q and 4.9% y-y. Mobile service providers continue their investments in Mobile IP Backhaul and Packet Core networks, including significant capex spend shift to LTE networks. 


Cisco posted significant gains in Packet Core (MPC + EPC), increasing 306.3 percent q-q and 32.4 percent y-y. Cisco, which holds 43.2 percent of the total mobility market, has been focusing on its Packet Core offerings with a high price/performance portfolio strategy and winning in key LTE markets. Cisco’s core strengths in Packet Core and its extensive LTE core network experience are a result of its large/incumbent position in AT&T and Verizon Wireless where it has acquired complex deployment experience in 3G migration, LTE capacity planning, subscriber policy management, and multimedia/video revenue creation models.

Ericsson, which holds second place in the total mobility market, continues to lose market share in all segments, decreasing 28.3 percent q-q and down 30.2 percent y-y. The company reported 147 EPC contracts in 70 countries and 104 commercial live EPC networks in 1Q.

Alcatel-Lucent posted decreases of 10.7 percent q-q but increases of 4.5 percent y-y.  ALU announced 42 LTE EPC wins and 70+ total wireless packet core wins and (2G/3G, & 4G/LTE) to date, which helped put the company in a solid third place market share position. The North America regions accounts for 95 percent of ALU’s revenue in packet core.

2014 will see increases in mobile spending, globally, despite ARPU declining across many regions. EPC will continue to be a highly dynamic market for the next several years as vendors and carriers work through network virtualization. Mobile service providers are focused on optimization of RAN and Mobile Backhaul, as well as on their network capex and opex. Companies are delivering new innovations in Mobile Backhaul that are enabling mobile service providers to scale investments by reducing hardware costs by considerable amounts. Flexibility in Mobile Backhaul is a key requirement to winning the race for optimization. Many Tier 1 vendors have released or announced partnerships to provide a range of deployment options to mobile service providers, enabling planning and operations efficiencies. ACG expects innovations, investments and consolidations within the Mobile Backhaul segment in 2014.

For more information about ACG's Mobile IP Infrastructure services, contact sales@acgresesearch.net.


Sunday, May 18, 2014

Business Case for Cisco SDN for the WAN

Traffic requirements are growing rapidly because of the widespread acceptance of online video services, cloud computing, and mobile broadband. WAN costs also are rising with traffic growth in part because of suboptimal network utilization efficiency. At the same time service creation processes are lengthy and service providers’ responses to competitive threats such as over-the-top video and cloud-based services have been sluggish, resulting in slow revenue growth. A root cause of rising WAN costs and slow revenue growth is poor WAN management information flows and many manual work steps.

Software defined networking in the WAN offers the opportunity to drive down costs through increased operational efficiency, increased service creation velocity, and differentiated and personalized network services. Cisco WAN Automation Engine implements SDN in the WAN for service providers’ networks. It is a platform that provides real-time visibility, analysis and control across multivendor network infrastructure and services. Real-time software abstraction of the network allows applications to gain visibility and control of the network through web programming techniques rather than through device-specific embedded programming techniques. This strengthens service providers’ network control and lessens their dependence on systems vendors.

ACG Research analyzes four use case examples to demonstrate the financial benefits of SDN in the WAN as implemented by WAE to service providers. Two dynamic bandwidth management examples identify opportunities for service providers to sell occasional, high-bandwidth services to enterprises and quantify financial metrics, including net present value, gross profits, and return on investment. Two traffic engineering examples describe opportunities to apply automated traffic load management to increase service velocity, reduce operating expenses, and improve network utilization. 

Click here to download the TCO.

For more information about Michael Kennedy, click here. To read other business cases, click here.


mkennedy@acgresearch.net
www.acgresearch

Monday, May 5, 2014

Becoming an Agile Operator in a Globally Connected World

Growth in application uptake and related traffic volumes are outpacing the ability of legacy platforms to keep pace. Providers are aware that they not only need new solutions but also need new models ​for how computing and networking should be done to meet demand and growth. The answer​ is in use of virtualized platforms and open modular software, which are providing order of magnitude improvements in scale, agility and TCO versus legacy designs. Cloud-based applications and IT investments are delivering payback periods of less than one to between two and three years depending on the service. Virtualized network functions are demonstrating ​sustainable ​ reductions in TCO of 40–65 percent, doubling the speed of new service deployments.

Operators can secure efficiencies and paybacks ​in these ranges ​ by starting on targeted programs of adopting the virtualized platform ​model. With the prospect of benefits from virtualization being as broad and substantial as the early evidence shows they can be, the primary imperative for an operator’s team is to choose the areas in which early implementations can be trialed, aligning those targets with a coherent vision of how service offerings might evolve moving forward, and building on the progress achieved. The track record of cloud and virtual platform implementations to date has shown that remarkable acceleration of innovations and new service developments can be achieved in fractions of the time previously required to deliver functionality. The relative efficiencies in deploying and scaling the solutions that gain traction allow for an order-of-magnitude improvement on total costs of operation.

Click here to read the research brief.

For more information about ACG's SDN consulting and syndicated services, contact sales@acgresearch.




Paul Parker-Johnson
www.acgresearch.net