Disruptive Impacts of Virtualization and Open Source —
Until recently, network technology vendors to communications service providers (CSPs) had a well-established competitive market position with brand loyalty, long-standing customer relationships, and well entrenched proprietary solutions. However, an inexorable move to software-based (virtualized) solutions, combined with the increasing prevalence of open-source resources, is disrupting the market dynamics and will have profound implications for the industry structure.
Traditionally, telecom network technology vendors supplied bespoke solutions, typically consisting of hardware racks populated with purpose-built circuit boards that performed highly specialized tasks, complemented by highly customized software, with complex back office systems to manage these systems and the applications that run on them. These solutions were supplemented by extensive professional services resources, and typically involved regular software upgrades, and, less frequently, hardware ones.
This, combined with the long cycles involved in introducing new solutions, or in upgrading existing ones due to long testing cycles, created a relatively closed ecosystem with high barriers to entry and high switching costs. It also drove costs up, as it increased the bargaining power of suppliers; it limited the number of competitors and stifled innovation because younger companies with fewer resources found it difficult to penetrate the ecosystem.
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April 1, 2022The Disruption
The inexorable migration to software-based virtualized solutions is creating profound long-term consequences in their operating environments. Their long-term goal is of a fully software-driven ecosystem with software-only network elements running on commodity off-the-shelf servers (COTS) or open source hardware, hosted in local offices, in distributed data centers or in a cloud-compute environment.
The software-based systems are not less complex, and the incumbent vendors are rushing to either port their existing solutions on COTS or redeveloping parts of those systems to become software based. It also allows new software vendors to enter the market without the long design, manufacturing, and logistics supply chains of traditional hardware.
At the same time, the CSP traditional development / deployment paradigm, which was largely based on the waterfall model and involved protracted cycles, is slowly making way to an agile framework, based on the Continuous Integration / Continuous Deployment model where incremental changes are introduced on an on-going basis, enabled by a microservices-based, modularized architecture. This paradigm allows minimally viable products to be introduced and then rapidly enhanced, reducing the entrenched foothold of existing suppliers and opening the way for new entrants, further transforming the market dynamics. (See Figure 1.)
Figure 1. Shifting balance of power between CSPs and vendors.
By reducing the barriers to entry, virtualization is adding new vendors and new delivery mechanisms that bypass the traditional supply chains: new virtual network software companies, public cloud companies, and the network operators themselves.
New Virtual Network Software Companies
Examples include Affirmed Networks, Altiostar and Parallel Wireless that offer a software-based mobile core solution, Etiya that provides a nearly fully virtualized mobile solution (running on an AWS public cloud infrastructure), and Metaswitch that offers a wide range of mobile and fixed network software-based network technologies. Other traditional software vendors to operators, such as HPE, are also entering the virtualized network equipment market.
Public Cloud Companies
Cloud providers are increasingly tapping into the convergence of cloud and communication networks. Recently, Microsoft bought Affirmed Networks, which offers fully virtualized, cloud-native mobile network solutions for telecom operators. This acquisition enables Microsoft to become a major telecom vendor in the mobile and nascent private 5G markets.
In days past, communication service providers (CSP) used to build their own data centers, but virtualization technologies enable cloud providers, such as Microsoft, to offer the same capabilities, mostly as services, on their public computing and storage infrastructure at much lower initial cost and with more flexibility.
Do-It-Yourself, or DIY
Some CSPs are hiring software developers in droves and are beginning to develop their own solutions. Not only that, but some operators are also transforming themselves into vendors, offering their solutions to their peer operators.
A case in point is Comcast Corp. The company’s mantra has become "software eats the world". Its Comcast Technology Center serves as "the dedicated home for our company’s growing workforce of more than 4,000 technologists, engineers and software architects." Comcast has developed its Xfinity X1 entertainment service in-house; it is also syndicating it to cable operators, including Cox and Shaw and Rogers of Canada. At the same time, the company has developed a software-defined platform (ActiveCore) to power its business services, and it is not unfathomable that it will look to syndicate it at some point in the future.
Others CSPs are expanding their software capabilities for both internal and external use. Reliance Jio’s parent company, Reliance Industries, bought Radisys, a US-based provider of open telecom solutions, while AT&T’s expansion of its software capabilities is well-known in the industry.
Open-Source Collaboration
Most operators do not have the capacity nor the ability to undertake massive development efforts, particularly because some of the solutions they need are highly complex. However, open-source hardware and software and disaggregated network elements go a long way to alleviate the need to undertake end-to-end developments.
Recent disaggregated network element (DNE) projects, some including open-source hardware and software, have been created by CSPs throughout the various telecom equipment domains, from radio backhaul to the core networks, optical access and transport equipment, and edge computing environments, among many others.
DNEs are essentially public open source LEGO-like building blocks that run on standard computing and storage hardware or programmable ASICs that standardize designs and can be used to create solutions. They enable CSPs to select the best combination of commoditized hardware and specialized software components. DNEs are designed to reduce vendor lock-ins, and to further lower the barriers to entry for new vendors, increasing competition in sales and support.
New engagement models are emerging. The traditional supplier / customer relationship is making way to a cooperative engagement model, where the operator and the vendor work hand-in-hand on developing solutions. Furthermore, unlike traditional models where the vendor is paid upfront and is further compensated for on-going support, new frameworks are emerging where the vendor is compensated based on the success of the operator. One such arrangement was the Infinite Broadband Unlocked that Cisco introduced in 2018 where it charged cable operators based on broadband consumption over their networks, rather than upfront licenses. Such arrangements are facilitated by software-based solutions, and are likely to become more prevalent over time, further disrupting market dynamics.
The Future
The commoditization of the hardware components of the network reduce the vendors’ margins and potentially reduce overall CSPs’ costs. However, the CSPs have to bear the additional costs of testing multivendor arrangements, configuring, and managing the larger number of network components, as well as securing the entire network.
These additional costs eat into the potential savings, and are expected to require a hefty dose of automation. Such automation comes from vendors and systems integrators, as well as from additional open-source initiatives such as the ONAP program, the open-source version of the AT&T ECOMP home-grown system that seeks to provide real-time, policy-driven software automation of AT&T’s network management functions.
It is too early in the game to scope the full impact of this unfolding transformation. It is likely that it increases the speed of innovation, and improves the cost structure for operators. At the same time, intense competition may reduce vendors’ margins, decreasing their ability to invest in R&D.
Ultimately, a symbiotic relationship between operators and vendors improves industry dynamics, overall, as it leads to better targeted solutions, to more cost efficiency, and to improved customer experience.
These technological changes and industry realignment are enabling CSPs to gain greater market control and to reap larger efficiencies by replacing monolithic hardware and software solutions from major vendors. By utilizing disaggregated networking elements with open-source software on commoditized, standardized hardware and adopting co-development models, CSPs continue to benefit. However, this likely impacts the pricing power of major vendors, and impacts their margins over time.
This type of network transformation comes with pros and cons for CSPs and vendors alike. The good news is that developments such as these may also lead to greater innovation across the industry as a whole.
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Coauthored by Liliane Offredo-Zreik and Dr. Mark H Mortensen
Dr. Mark H Mortensen is the Communications Software Principal Analyst at ACG Research, focusing on network and business automation, and is an acknowledged industry expert in communications software for the TMT sector. He has more than 40 years of experience in OSS and BSS specifications, network operations, software architecture, product marketing, and sales enablement. His work has spanned the gamut of technical work at Bell Labs, strategic product evolution at Telcordia, CMO positions at several software vendors, and as a research director at Analysys Mason. For more information, please email [email protected] or visit https://www.acgcc.com. Follow Dr. Mortensen on Twitter @DrMarkHM.
