U.S. Leads NFV Market but Not for Long

ABI Research expects that the U.S. will lead the global network function virtualization (NFV) market for the next five years in terms of deployments and vendor opportunities, making the North American region the most prominent for NFV forecasts. Additionally, ABI Research expects the U.S. NFV market to reach 10.3 billion in 2022, with a CAGR of 48% between 2017 and 2022. AT&T has been vocal about its network virtualization plans in Mexico and Canada, and is planning to upgrade 75% of its network with NFV technology by 2020. Verizon and CenturyLink are also active in deploying NFV. Thanks to these three players, ABI Research believes that 80% of the overall communication network in the North American region will be virtualized by the end of 2022.

Many of the major NFV vendors (providers of NFVI, VNFs, and MANO software) are headquartered in the U.S., including Amdocs, Brocade, Ciena, Cisco, HPE, Intel, Juniper Networks, and VMware. The region is also a major focus for Ericsson and Nokia, as they are the biggest providers of telco equipment for all carriers in the region. Several vendor-telco partnerships are providing market innovations that will likely provide value outside the U.S., for example AT&T’s partnership with Amdocs for ECOMP. These collaborations are expected to help the NFV ecosystem to achieve benefits including agile system development and deployment, CAPEX/OPEX reduction, use case-dependent flexible architecture, and optimum utilization of multi-vendor expertise. Most importantly, these partnerships are exposing the extent of the transformation needed to fully deploy and adopt NFV, which is a complicated journey several telcos are realizing during 2017.

Although Europe and Asia followed the U.S. market during 2017, ABI Research expects both will become significant markets for NFV in the years to come. Specifically, the Western European market is expected to experience the highest growth rate in the next five years in the NFV market, and majority of the deployments will be observed in advanced markets, including Italy, France, and Germany, due to market demands that translate to the need for agile and dynamic network management. Telcos (Telecom Italia, Vodafone Italy, Orange S.A., Vodafone Germany, Deutsche Telekom, and supporting vendors) in this region are not only virtualizing their network platforms, but are also driving the process of network transformation for entering in the era of streamlined and automated communication infrastructure.

The Asia-Pacific region is as equally important in the NFV race. Based on an ABI Research analysis, 70% of Asia-Pacfic businesses are at some stage of NFV testing (with an increasing number of deployments). Additionally, Japan and Korea are leading in NFV in this region, as well. China has the highest growth rate in this region, as China Mobile, China Unicom, and China Telecom run the largest networks in the world and are regarding virtualization as a major strategic component of their future.

NFV is a globally acknowledged concept, but not every telco company is serious about adopting it. ABI Research observed that, due to the hurdles in the modern technology adoption (standardization factors, vendor-specific software versus open-source solutions and interoperability), overall 30% of telcos are not yet ready to work on NFV. The adoption rate is lowest especially in developing markets, including the Middle East and Africa region. These telcos are still in the “wait and watch” stage and are observing the market closely. Several of these telcos cannot spare the capital or effort required to embark on a virtualization journey, which, at the moment, translates to efficiency—not business gains. Apart from the technical hurdles, the delay in NFV adoption is due to two main reasons:

• The NFV market is not yet matured, therefore, vendors are still analyzing the benefits of the technology long-term
• Vendors are still not clear how software licensing business models will affect their businesses. Moreover, they are not sure how to handle NFV product lines so that they don’t cannibalize existing hardware-based revenues

The intensive impact of NFV can be seen on the parallel markets such as 5G wireless and software-defined networking (SDN). ABI Research predicts that 5G will act as a catalyst for the faster adoption of NFV and will create the business opportunities needed to drive the large-scale deployment of NFV—the same goes for SDN. North American integrated solution providers (vendors) are currently very active, and in some cases, more active than vendors from other areas. This region may be the first to experience the combination of 5G, SDN, and NFV technologies to advance the telco industry.