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ACG Research
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Wednesday, October 9, 2013

Carriers’ CapEx Focuses on Edge Segment

The Total Worldwide Service Provider Carrier Router-Switch market is projected to increase from $11.9 B to $15.4 B by 2018 (CAGR 5.3%). From a regional perspective, the Americas and APAC will lead the growth as carriers respond to increases in data traffic, Big Data, virtualization, software-defined networking and the unrelenting demand for innovative and intelligent applications and services. The projected five-year growth will be strongest (in order of growth) in North America (CAGR +5.2%), APAC (CAGR +5.1%), LAM (GAGR 5.0%) and EMEA (CAGR +3.1%).

Carriers are focusing their CapEx on the edge segment. Why? The edge has significant impact on customers’ experiences and subscriber revenue. The edge segment, which is projected to reach $12.1 B in 2018, dominates the router market and is 3X the size of the core router market, which will increase $3.2 B in 2018. Driving edge growth is 1) the increase of bandwidth capacity of edge routers, 2) integration of network service functions, such as video services, NAT, security and threat management, 3) movement toward SDN, which approaches the network as an amalgamate and configurable resource and 4) traffic being pushed to the edge. Additionally, the cost of increasing bandwidth capacity in the core and carriers running their core networks hotter, and thus utilizing more resources, has pushed traffic to the edge.

Mobile backhaul is also driving this edge growth; more people are connecting with multiple devices, which is propelling operators to upgrade their backhaul networks with routers to support mobile services based on LTE and HSPA+ technologies. Mobile operator CTOs have been and will continue to focus on network cost economics, 3G-WiFi integration, and carrier aggregation.

The core router market, which is anticipated to grow to $3.2 B/5.4% by 2018, is also undergoing a transition. Carriers are utilizing a combination of MPLS and optical switching to handle traffic loads that are crossing the core and which do not require detailed analysis. The advantage of adding optical switching to a packet switch for carriers is twofold: this combination is more scalable, and time and costs associated with converting traffic between electronic and optical platforms are both reduced.

CapEx for the second half of this year is looking positive and expected to increase 7% year over year. Key drivers are LTE investment in mobility and Carrier Ethernet and 100G in the wireline side.

In the next five years service providers will continue to focus on monetizing emerging opportunities, which will require networks that enable them to accelerate service innovation, scale services, and expand the customers’ experiences, all within a viable economic framework.

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