Network Slicing is a US$44 Billion Opportunity for MSPs in Vertical End Markets

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3Q 2018 | IN-5211

Telcos are increasingly seeking to create services that are more differentiated and tap into the growth engine of the future—a future intrinsically linked to hosted experiences. Telco cloud provides the resource pools needed to host those experiences, whereas network slicing can enable differentiated capabilities (performance, reliability, security) tailored to varied use cases. Network slicing affords the opportunity to be agile and has the ability to capture revenue that could otherwise be overlooked or be captured by a competing entity. Much of the discussion focuses on industry verticals and how the associated current complexity of doing business can be alleviated with network slicing. However, no publications have been released that size the market and further elaborate on that revenue opportunity.

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Network Slices for Industry Verticals

NEWS


Telcos are increasingly seeking to create services that are more differentiated and tap into the growth engine of the future—a future intrinsically linked to hosted experiences. Telco cloud provides the resource pools needed to host those experiences, whereas network slicing can enable differentiated capabilities (performance, reliability, security) tailored to varied use cases. Network slicing affords the opportunity to be agile and has the ability to capture revenue that could otherwise be overlooked or be captured by a competing entity. Much of the discussion focuses on industry verticals and how the associated current complexity of doing business can be alleviated with network slicing. However, no publications have been released that size the market and further elaborate on that revenue opportunity.

ABI Research set out to forecast the value at stake in the report Network Slicing: Commercial Analysis and Enabling Technologies,(AN-4908),  basing its projections on three categories: conservative (0%–25% adoption over time), neutral (0%–50%) and aggressive (0%–75%). Each category estimates how much revenue telcos would generate on top of their existing, mostly connectivity-driven revenues over time. This executive foresight presents estimates from the neutral projections and elaborates on the broader value for the industry verticals considered in this research.

Value at Stake

IMPACT


ABI Research expects the market for network slicing to grow substantially in the coming years, which will provide increasing opportunities for telcos, vendors, and various industry verticals. Network-slicing revenues will eventually be on an upward trajectory and will be driven by digital, cloud, and security requirements of multiple industry verticals. Telcos and vendors are pursuing different models of collaboration with vertical markets, and growth for each market will be driven by capabilities, revenue potential, and the ability to address existing challenges in the short and medium term. ABI Research’s neutral estimates point to a market that is projected to start from a moderate US$482 million in 2019, growing to US$ 43.9 billion in 2026 at a Compound Annual Growth Rate (CAGR) of 147%. This market’s value to various industry verticals will vary in line with their corresponding digitization initiatives and readiness to adopt new technologies.

Network slicing stands to create more than US$40 billion in value for the trio of manufacturing, logistics, and automotive—the majority of which will come from efforts to enhance: connectivity and quality of service, new driving experiences, and streamlined processes for complex environments. Network slicing is expected to play a critical role in supporting digital requirements for manufacturing. Our estimates point to a US$21.7 billion of value being created in this specific vertical, at a CAGR of 157% through 2026. Realizing the full revenue potential of this market is dependent on essential slicing infrastructure and pertinent applications delivered by the telecom industry.

The second biggest revenue opportunity lies in the logistics sector, where we project the market to increase from US$43 million in 2019 to US$13.3 billion in 2026, at a CAGR of 215%. We attribute this healthy growth outlook to a broad set of logistics use cases, all of which give rise to a complex infrastructure that will need to be managed in an efficient fashion. Our analysis indicates that network slicing could unlock a US$5.2 billion in value for the automotive industry over the next eight years. Specifically, for this industry vertical the revenue opportunity points to a shift from US$136 million in 2019 to US$5.2 billion in 2026 (CAGR 107%).

Our forecasts indicate that three verticals account for 91% of the total revenue opportunity: manufacturing, logistics, and automotive. The remaining revenue is distributed among agriculture, retail, public safety, smart cities, consumer, utilities, and health and wellness.

ABI Neutral Estimates Graph

 

Growth Drivers

RECOMMENDATIONS


Accounting for 49% of the market, manufacturing is by far the biggest share of the projected forecast. This may be attributed to the very fragmented nature of this vertical, where legacy connectivity protocols and wired technology dominate. Furthermore, solutions in this market have always been developed in close collaboration with specialized technology partners and well-established vendors. Network slicing marks a departure from this rigid arrangement by promoting flexibility and dedicating capabilities tuned to different manufacturing use cases, and it opens new opportunities centered on mobility that will translate to high spending in the next eight years. A further driver is the fact that the manufacturing market has been a central area of the Industry 4.0 movement, which is anchored on the idea of using connectivity technologies to enhance the production process. This is also in line with current 5G industry trends, where manufacturing is positioned as a key vertical for new business opportunities.

Logistics and automotive are the second- and third-highest projected industry verticals, accounting for 30% and 12% of the overall projected total respectively. Logistics calls for new digital and streamlined processes in complex environments that span multiple devices and domains, all of which have requirements such as resilience (guaranteed availability), security, and intelligent transport systems. Logistics can also generate huge amounts of data which require tailored Service-Level Agreements (SLAs). These agreements will benefit from a 5G network-slicing architecture. An initiative that gauged the utility of network slicing in this vertical was the proof of concept of Nokia and Deutsche Telekom’s partnership to create a test bed for the Hamburg Port Authority in Germany. The purpose was to test multiple use cases, including traffic-light management, data processing from mobile sensors, and virtual reality. With regard to the automotive industry, automated driving, infotainment, and High Definition (HD) maps are all use cases expected to drive network-slicing spending. Examples of industry collaboration in this vertical abound. For example, AT&T’s collaboration with more than 20 car manufacturers (e.g., BMW, Audi, Chevrolet) to advance autonomous vehicles is a case in point, as is the network-slicing PoC between Nokia and BMW, which explored discrete network slice use cases for the automotive industry.

The wider impact of network slicing for other industry verticals (e.g., utilities, health and wellness, agriculture, retail) will be positive, albeit on not as large a scale as the three prevailing markets above. This is attributable to following three factors.

  1. The premise of network slicing to create value will rest with the uptake of premium services, typically represented by large (but fewer in number) transactions found in capital intensive verticals such as automotive, manufacturing, and logistics.
  2. A key component of the forecast is security services, which is not an area of high concern for low-priced goods and services typically associated with utilities, health and wellness, agriculture, and retail.
  3. Verticals such as retail and consumer are increasingly the area of web-scale players who have invested heavily in these markets and who are heavily investing in their own networks.

Services

Companies Mentioned