ACG: Carriers Put Open Source First; So Will Their Future Strategic Suppliers: $11B of Networking Spend in Play

A new report from ACG Research, an analyst and consulting firm that focuses on  service providers networking and the telecom industry, identifies the business impact that open source networking delivers for operators and suppliers/vendors.

The report, sponsored by LF Networking, documents a massive shift underway in carrier sourcing and design strategies, with open source-first philosophies unequivocally at their core. The new research also reveals major growth in network control, orchestration and the edge. The network control and orchestration software markets are expected to double in size by 2023, according to ACG, while edge networking will see growth rates in excess of 100% year over year.  Overall, over $11 Billion in current networking spend–$7 Billion in hardware alone–is in play, according to ACG.

“Succeeding in an Open Field: The Impact of Using Open Source in the Communication Service Provider Ecosystem” set out to analyze and identify the impact of adopting open source technologies in solution offerings and business practices among service providers and product suppliers. The report hones in on their perspectives toward open source adoption in orchestration, network/service control and network infrastructure. The report dives into the impact of open source adoption on vendor business models and practices, as well as on the methods they employ to create and deliver the solutions they are deploying into the categories we described. For more information, see ACG’s report here.

The move to replace proprietary equipment with disaggregated approaches is well-documented; this new report adds further evidence carriers are eager to leverage white box servers and SDN/NFV:

• The infrastructure mix itself is shifting toward software, with hardware sales declining ~3% per year to 72% of the total DC networking infrastructure spend in 2023.
• Spending for MEC- and CORD-type edge deployments is expected to grow 4-5x over the next 5 years.
• In the exploding edge market, virtually all new revenue growth will come from software.
• Led by edge and access aggregation locations, adoption of transport routing open source hardware (including merchant-silicon NPUs) from existing hardware vendors (EPCs) will increase from 5% to 35% in the next 5 years. As a percentage of total revenue, EPC transport routing hardware will decline from 70% to 52% while services and software licensing will expand in the next 5 years.

Carriers have also made the decision to go open source, which is also not up for debate. While this is especially true in the control and orchestration domains, even EPC transport routing open source content goes from 2% to 20% in the next 5 years. While carriers are keen to reduce vendor lock-in, this is viewed in the context of architectural flexibility, not cost reduction or a strong desire to push out current vendors.

These anonymous carrier quotes captured during the research back this up:

• “Our priority is on flexibility and broad community alignment on a common technological foundation with an open source core.”
• “We want to align on common solutions for commonly required cores of functionality so our own, and the industry’s, efficiency can increase, and we can focus on adding value in applications and services that will benefit our customers uniquely.”

This architectural shift is itself a testing ground for vendors. The report found that operators don’t have the resources to deliver the entire stack on their own, which also creates a near-term opportunity for vendors in integration tools and services.  Longer term, carriers will seriously consider any vendor as a possible strategic partner — whether new or established — if they are effective in helping carriers through this transition.

In the carriers’ view, the most effective vendors are those who share their mindset around open source software as a driver for future growth in these areas. These vendors are fully immersed in key upstream projects so they can advise their carrier customers and develop needed new platform features; and they are thinking proactively about how to shift their business models and offerings in response to the carriers’ changing needs. SDN and orchestration providers of all kinds–both existing management software providers as well as open source-centric startups–are clearly aligned with the carriers about the value of active and consistent open source engagement, but existing infrastructure (EPC) vendors have a much more complicated attitude. All recognize that their carrier customers are focused on software and open source, but many view its benefits for themselves primarily in time-to-market terms, and don’t see open source as being strategic to their own business or technology strategy.

In ACG’s view, the infrastructure providers have some time to shift their business focus if they continue to provide overall value during their customers’ transformations. And those infrastructure vendors who also have management software in their portfolios have an opportunity to drive collaboration internally between with those teams to help navigate their own business transitions. In the end, however, ACG expects at least 35% of even commercial hardware portfolios to be white-box/merchant silicon-based by 2023, with the vendor/brand value locked in the NOS.

Be sure to download the full white paper today.