Ride the NFV Wave, Not the Hype

Monday, August 22, 2016

Communication equipment analyst Dmitry Netis believes that “network functions virtualization (NFV) is the most disruptive transformation of the service provider network since its existence.” According to Analysys Mason, the NFV market is expected to exit the R&D phase and enter the commercial deployment phase in 2018 at $2.4 billion, inflecting to $29 billion by 2023. AT&T is setting the tone in the industry aiming for 75% of its network to be virtualized by 2020, up from 5.7% in 2015. These new network architectures must be monitored and constantly tested to assure optimal performance.

Operators use a combination of active and passive probes to monitor interfaces between network functions, analyze traffic on network interfaces, and extract intelligence for multiple applications such as customer experience management, service assurance, network performance monitoring, network planning, marketing analytics, call tracing, and troubleshooting.

Poor network quality (which can manifest itself in dropped calls or pixelated video traffic) is bound to lead to increased subscriber churn, which in turn can be very costly for the operators, given the tremendous amount of sales-and-marketing dollars spent on acquiring these subscribers. Network quality is determined by coverage and capacity. Network coverage is achieved by capital investments, technology upgrades (e.g., LTE and/or small cells), additional spectrum, and better planning and optimization techniques. Network capacity is achieved by deploying excess network equipment so that demand does not exceed supply, policy control techniques (such as bandwidth throttling), and deploying new technology that transports more bits over the same physical assets.

Network tools such as probes monitor network coverage and capacity demands, as well as traffic applications and patterns, which differ greatly and must be monitored efficiently. For example, the Internet protocol (IP) is connectionless, so traffic can be “bursty” and unpredictable. Voice and video, unlike other services, are susceptible to latency and jitter, which can result in a poor customer quality of service if controls do not exist in the network. Wireless and wireline networks have separate requirements given spectrum and capacity constraints.

Passive probes capture network traffic using packet-capturing techniques (such as deep packet inspection) and then send the information to the network management and OSS without disturbing the network being monitored. Using this information, a decision can be made to allocate more bandwidth if usage has spiked or tear down excess capacity in idle times. Active probes inspect traffic and can inject various traffic patterns locally (at the point of testing), affecting network operation. The use of active probes, however, has been diminishing in favor of passive monitoring and centralized OSS decision-making.

Netis noted that, “most incumbent probe vendors have been late to develop solutions for the NFV environment, because of either competing business priorities or other distractions (e.g., NetScout’s acquisition of Tektronix and Viavi).” He continued, “for some vendors, NFV is not a mass-market phenomenon yet; therefore, large vendors focus on immediate opportunities where their core technology is dominant.” With 90% of its revenue from software and its transition from hardware to software completed in 2015, Radcom should be able to capitalize on its early entrance in the space. However, we expect incumbent probe vendors to commercially launch virtual probe products or accelerate investments in the space throughout 2016 as the market becomes more apparent. Netis estimates the NFV probes market to grow to a $900 million opportunity by 2020 from virtually zero today (a combination of virtual functions in an all-NFV network and physical and virtual probes in a hybrid network), based on several assumptions (presented in the market size and share section of the report) and market data from Analysys Mason.

For a copy of this report or for more information on the communication equipment companies covered by Dmitry Netis, please contact your William Blair representative.

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