The big question about any new network technology has always been whether it could raise revenues. Cost reduction is nice, but revenue augmentation is always a lot nicer—if it’s real. With NFV, the focus of the revenue hopes of operators has been virtual CPE (vCPE) that could offer rapid augmentation of basic connection services with add-ons for security, monitoring and management, and so forth. In fact, because vCPE is a pretty easy service to understand, it’s also been the focus of NFV PoCs and of many vendors.
Operators aren’t completely sold on the concept, though, and the reason is that many have been encountering early issues in vCPE-based services. Some have told me that they are now of the view that they’ll have to reimagine their vCPE deployment strategy, in fact. Nearly all are now “cautious” where many had been “hopeful” on the prospects of the service. What’s wrong, and how can it be fixed?
The value proposition for vCPE seems simple. You have a customer who needs some higher-layer services at their point of network connection. Security-related services like firewall are the biggest draw, followed by VPN, application acceleration, and so forth. These services would normally be provided by specialized appliances at each site, and with vCPE they can be hosted in the cloud and deployed on demand.
There are two presumptions associated with this model. First, you have to presume that there are enough prospects for this kind of service. Second, you have to assume that you can deliver the service to the customer at a lower cost point than the traditional appliance model could hit. Operators report some issues in both areas.
Despite some vendors (Adtran, recently) advocating the use of NFV and cloud hosting as the platform for delivering services to SMBs, operators are indicating that the interest in the vCPE model doesn’t seem to extend very far down-market. To offer some numbers from the US market, we have about seven and a half million business sites here, which seems a lot. Less than half of them are network-connected in any way. Of that half, only about 150,000 are connected with anything other than consumer-like broadband Internet access. Globally, there’s a bit more than half-a-million such sites.
Business broadband using consumer-like technology (DSL, cable, FiOS, etc.) is almost always sold with an integral broadband access device that includes all the basic features. My surveys have always shown that these devices are very low-cost in both opex and capex terms, whoever buys them. In fact, the number of SMBs who reported incurring any significant cost in broadband attachment, including add-on elements like security, was insignificant. What this means is that about one site in fifty is a prospect for any sort of vCPE service unless you step outside the realm of what’s currently being used.
Operators also tell me that even that one-in-fifty odds can be optimistic. The problem is that most companies who have network connectivity today had it a year ago, or more. The need for a firewall or a VPN isn’t new, and thus it has probably been accommodated using traditional devices. Users who already have what they need are uninterested in new services whose cost is higher because those services include vCPE features.
You can see the pattern of vCPE success already; where “managed services” are the opportunity then vCPE is much more likely to be successful. MSPs offer the service and the CPE together, and if you can reduce the cost (both capex and opex) of fulfilling managed services you can earn more money. However, most enterprises aren’t interested in managed services because they have professional network staffs available. That squeezes vCPE opportunity into the high end of SMBs, perhaps to professionals-dominated sites where you have valuable people who aren’t particularly tech-savvy.
The cost problem remains, or at least the impacts remain. The presumption with NFV has been that “cloud hosting” of virtual functions would offer significant economies of scale. That’s probably true, providing you have a cloud to host in. Most operators not only have no such cloud in place, they don’t have the opportunity density for vCPE to justify building one. You can’t backhaul VPN access very far without incurring too much cost and delay, so centralized hosting isn’t easy.
This has given rise to the idea that “vCPE” really means an agile premises box that’s kind of a mini-server into which you load features that you call “VNFs”. In point of fact, there’s no need to use any of the standard NFV features at all in such a configuration, unless you believe that you can evolve to a cloud-hosted model for vCPE or can drive toward true NFV another way, then reuse the facilities for your vCPE deployments.
There is absolutely no question that there is an opportunity for vCPE created with this agile device, but it’s not a server or cloud opportunity. There’s no question that it could evolve into a cloud opportunity if you have some other means of driving cloud deployment to reach a reasonable level of data center distribution near the access edge. The problem is that this all begs the question of what’s going to create that driver for cloud deployment en masse.
This suggests that we’re spending too much time focusing on vCPE, because it’s not going to be the thing that really drives NFV success. For that, you have to look to an application of NFV that has a lot more financial legs. As I’ve noted in the past, there are two pathways toward broad-based NFV deployment—mobile infrastructure and IoT.
Operators love the idea of mobility as a driver for NFV; every mobile operator I’ve talked with believes that NFV would improve their agility, reliability, and capability. They’re most interested in NFV as a part of a 5G rollout plan, since most of them believe that they’ll have to adopt 5G and will also have to transform their mobile backhaul (IMS, EPC) infrastructure to accommodate and optimize 5G. They also tell me that they are getting 5G-centric NFV positioning from at least two vendors, which means that there’s already competition in this area.
The challenge with 5G as a driver is twofold. First, you have to wait for it to happen; most believe it will roll out no earlier than the end of 2018. That’s a long time for NFV vendors to wait. Second, the 5G driver seems to preference the mobile-network-equipment vendors, which means everyone else is pushing noses against candy-store windows.
IoT looks more populist, more cloud-like, but the problem there is that operators are far from confident that they should take a cloud-hosting role in IoT. They’d love to simply connect all the “things” using expensive wireless services and let the money roll in. It’s not a totally stupid concept, if you presume that over time every home and office and factory with security, environment, and process sensors will end up being connected wirelessly. If you think every sensor gets a 4/5G link, you’re imbibing something.
The problem with the IoT model is that unlike mobile infrastructure, operators don’t have anyone in the vendor space ringing the dinner bell for the revenue feeding. There are a few IoT players (GE Digital with Predix) that actually have the right model, but operators don’t seem to be getting the full-court press on solutions they can apply to their own IoT services.
The net of all of this is that we are still groping for something that could create a large enough NFV service base to actually justify full-scope NFV as the standards people have conceptualized it. We’re in the “NFV lite” era today, and vCPE isn’t going to get us out of that. The winners in the NFV vendor space will be companies who figure out that the key to NFV success is justifying a cloud.