ACG Research

ACG Research
We focus on the Why before the What

Tuesday, August 26, 2014

First Half Spending Boosts 2Q Router and Switching Market

Service providers are requiring more capacity because of an increase in mobility and agile cloud solutions, which are stimulating growth.

The Worldwide Carrier Routing & Switching markets increased revenue 7.0% in Q2 but remained flat 0.0% year over year. Global capex was up 5% q/q, and IT spending increased 6% q/q. In spite of this positive growth, ACG Research anticipates a challenging market in the second half of the year and lower service provider routing spend in Q3 with projects being pushed out to 2015. “AT&T and Verizon continue to surpass the industry average for operating margin. AT&T posted 17.2% operating margin while Verizon posted 24.4%. Many other SPs also saw solid margin gains, which had a positive impact for service provider equipment vendors in the first half of 2014,” states Ray Mota, CEO of ACG. “The router market outlook is uncertain because of architectural transitions, consolidations and larger then expected spending in the first half. The good news is that projects are not being cancelled but just pushed out.”

The rise in fixed broadband traffic and mobile broadband traffic on 3G/4G and LTE networks will continue to put pressure on providers’ networks. Streaming residential video is rapidly driving average household bandwidth requirements: 31% CAGR from 2.9 Mbps in 2014 to 7.3 Mbps by 2018. Smart phones, tablet, and next-generation devices as well as pressure on service providers to provide content-rich applications will force many service providers to upgrade their access, aggregation, and core networks, and mobile backhaul.

Q2 Total Worldwide Carrier Routing & Switching market posted revenue of $2.9 billion. Core Routing revenues were up 3.0% q/q but down 3.8% y/y. Edge Routing and Switching revenues increased 8.0% q/q and slightly up 1.0% y/y. 

Alcatel-Lucent reported routing and switching revenue of $603 million, increasing 17.3% q/q and 2.8% y/y. ALU’s solid quarter in routing is primarily attributed to the company’s gains in the IP Edge Routing segment, Multiservice edge routing and mobile backhaul. Cisco posted router and switching revenue of $1.46 billion, flat -0.05% q/q and -4.3% y-y. Cisco, which had a solid Q1, is transitioning from a hardware-based revenue to an annuity model, which impacted Q2. Juniper Networks has router revenue of $579.8 million, increasing 12.2% q/q and 12.5% y/y. Juniper continues to focus on launching new products and initiating cost reductions to drive growth. With software defined networking gaining traction as a solution for deployment, Juniper expects to capitalize on the anticipated increase of SDN and network function virtualization.

  • Data center interconnect is a vital part of the service provider edge; 6% of the overall edge market is dedicated to data center interconnect. 
  • Operators are more focused on the drivers in the edge of the network. The outlook for routers: the edge segment, which is projected to reach $12.2 B in 2018, is three times the size of the core router market, which will increase $3.3 billion in 2018.
  • Service providers are struggling with both internal and external challenges: rapid technology adoption, ongoing support for legacy technologies, heterogeneity of technologies and multivendor networks. External challenges include loss of high-margin legacy services, over-the-top providers, low-cost providers, regulations, increasing traffic, and competition from their own suppliers.
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Wednesday, August 13, 2014

Business Case for NFV/SDN Programmable Networks

ACG Research analyzes three programmable High-IQ network use cases that were created by Juniper Networks. The analyses show the benefits derived from the deployment of programmable networks for service providers. A cloud customer premise equipment and virtual firewall (vCPE) use case replaces physical CPE with a simple on-premise Ethernet device and moves IP virtual private network  and firewall functions to the cloud. This produces a 36 percent five-year net present value increase as compared to the physical CPE solution. A real-time network self-optimization use case replaces manual traffic engineering processes. This produces a 27 percent five-year total cost of ownership  savings compared to the manual processes. An elastic traffic engineering use case for a national all IP core network demonstrates the advantages of an SDN solution as compared to the present mode of operations. The SDN solution reduces bandwidth and associated link capital expenses by 35 percent while maintaining all network service level agreements.

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Wednesday, August 6, 2014

Demand for All Things Video, the Implications

Although video has transformed public and private networks and continues to drive network deployments it also dwarfs all other network traffic types, for example, Netflix can account for upwards of 40 percent of local Internet traffic. The massive amount of bandwidth required drives the need for capacity in all parts of the end-to-end network. If you solve this problem for video all other traffic, voice, email, web and even IoT benefits as well.  

Consumers have an unending appetite for all things video. They are watching TV shows, movies, YouTube, Vines, Facetime or Skype on every device they have. Advertisers are increasingly moving to video ads and away from static banners. Truly live TV is exclusively sports and news. Appointment TV is a thing of the past. Everything is becoming on demand.

The implications of these trends cannot be underestimated. Not only do they impact all aspects of the telecommunication and Internet ecosystem, they impact the movie and television industries in a major transformation way. As these businesses struggle to adapt to overwhelming innovative forces they only know one thing for certain: They don’t want video assets to go the way of music.

Service providers, facing a hypercompetitive zero-sum market, are attempting to adapt and upgrade their physical networks, data center, core, metro and access to support video traffic. The race to 1Gbps per home is well underway. Back office systems are adapting as well. Marketing departments are creating new service bundles with higher data caps and source funded noncap traffic, such as taking an order to sending a bill, all of which need to be supported. Legal departments are impacted too. Issues such as net neutrality, asymmetrical interconnects, must carry and spectrum acquisition are just of few of the array of legal issues facing service providers globally.

Mobile operators are in no way immune from video. As they address their coverage and capacity issues video traffic is front and center. More smart phones mean more handheld video screens, which use more bandwidth and have much longer connection times. Here too, all aspects of the mobile operators business are impacted. Small cell deployments, WiFi integration and SON plus the emerging requirements of 5G must address the demand for video.

Video might just be a lot of ones and zeros, but the impact of massive amounts of video is disrupting the entire telecommunication industry. It is safe to say that decisions made by the entire ecosystem, service providers, equipment vendors, software vendors, semiconductor vendors, must address the onslaught of video traffic.

Tuesday, July 29, 2014

Cisco NCS 6000: Building Converged and Application Intelligent Networks

To address its increasing traffic growth on its fixed and wireless networks, Telstra recently announced it will utilize the Cisco NCS 6000 platform in its network. Driving this need—which is not limited to Telstra—is the growing demand for cloud services, video and media services. Service providers are looking for cost-efficient solutions that address this growth as well as solutions that scale for the Internet of Everything and M2M networks.

Why the Cisco NCS 6000? Although other products enable intelligence on the network, Cisco differentiates by offering a solution that gives providers a programmable and intelligent network. The NCS 6000 has 1 TB/s per slot line cards with 10 port 100GE line, offering high density that can decrease the per unit cost for data transported, which results in a smaller/lower carbon footprint. This unit decrease further supports Telstra’s “green goal” of reducing its carbon footprint. 

When looking to build a converged network, it makes sense that Telstra would turn to Cisco, its trusted partner. The company has been using Cisco’s products in the core and is also a strategic partner for new cloud services. The NCS 6000 will provide Telstra with a platform to build an intelligent network that dynamically enables new products and services within the network.  

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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.

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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.

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.

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

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
Jasper, Axeda
2009, 2012,
Zelitron SA, Qualcomm, nPhase, Axeda
2003, 2010, 2010, 2011
T-Mobile (now part of Sprint)
Raco Wireless

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.