Market Forecast

Worldwide Telecom Network Functions Virtualization Software

(VNF and NFVI) Forecast, 2019-2023
Rajesh Ghai Patrick Filkins Rohit Mehra

IDC MARKET FORECAST FIGURE

FIGURE 1

Worldwide Telecom Network Functions Virtualization Software (VNF and NFVI)

Revenue Snapshot

Note: Chart legend should be read from left to right.

Source: IDC, 2019

September 2019, IDC #US45541417

EXECUTIVE SUMMARY

This document represents IDC's market size and forecast for telecom network functions virtualization
(NFV) software, encompassing virtual network functions (VNFs) and network functions virtualization
infrastructure (NFVI) across all carrier network infrastructure (CNI) domains. IDC had published
separate market analysis/research for NFVI and VNF software in 2018. This year, the two forecasts
have been merged and more significant detail is provided with respect to CNI domains and drivers of
architectural transformation within each market.

In defining NFV, IDC aligns with the European Telecommunications Standards Institute (ETSI)
proposed architecture. NFV is an architecture for virtualizing communications service providers (SPs)
network functions. Within this architecture, virtual network functions are defined in software, which
runs on underlying general IT hardware (commercially available servers, storage, and IP networking).
The VNF and NFVI software market forecasts provided in this document are based on a bottoms-up
forecast across subsegments in the following telco domains:

 Core and backbone transport: Core and edge routing and optical
 Wireless infrastructure: Core, RAN, and IMS
 Mobile backhaul (MBH)
 Access: EAD, PON and CCAP
 CPE
Ever since 2012, when ETSI first proposed the NFV architecture, communications SPs have slowly and
steadily embraced virtualized cloud-native architectures in their network infrastructure. A new class of
carrier network architecture has emerged in which virtualized form factors of network functions can be
hosted, operated, and managed on virtualized commodity infrastructure. IDC expects this architecture to
pervade all carrier network domains in the future. Even in network domains where speeds and feeds
continue to be important such as core routing, optical, and microwave, IDC believes that the adoption of
the control and user plane separation (CUPS) architecture will lead to the disaggregation of control plane
(CP) software from (UP) user plane software running on proprietary high-performance hardware. The
control plane software can then be hosted on a centralized virtualized cloud with associated benefits of
greater development and operational flexibility as well as faster innovation and nonlinear scaling of costs
as the network grows. Moreover, as the network slicing concept is adopted in 5G networks, the
motivation to virtualize the mobile network end-to-end and automate it will grow, leading to significant
growth in the NFV market in the outer years of the forecast period.

IDC expects the three main drivers of VNF adoption in the upcoming years to be the move to 5G in
wireless networks, the buildout of the multi-access edge cloud (MEC), and the adoption of CUPS
architecture. Wireless infrastructure (RAN, evolved packet core [EPC], and IMS) is the largest segment
of the VNF market today and is expected to remain the largest segment across the forecast period as
network virtualization penetration grows in support of 5G use cases. CUPS will drive an increase in
network virtualization across the routing, optical, and access networks driving the highest CAGR
across all domains from a relatively small base. Finally, the growth of the multi-access edge cloud will
drive the growth of NFV across wireline CPE, cable headend, and CDN use cases.

©2019 IDC #US45541417 2

IDC expects the overall spending on NFV software (NFVI and VNF) to grow from $4.65 billion in 2018
to $18.5 billion in 2023 at a CAGR of 31.9%. NFVI software is expected to grow at a slightly faster
CAGR when compared with VNFs, reflecting IDC's view that network complexity will increase
significantly as VNFs proliferate in carrier networks. Key to managing this complexity, and thus
harnessing the promise of virtualized infrastructure, will be carrier investment in software-defined
networking, automation, infrastructure management, and orchestration, especially in the outer years of
the forecast period.

In comparison to our 2018 forecast, our 2019 forecast has seen a reduction in both VNF and NFVI
estimates. The primary reason for the reduction in the forecast numbers is a slower-than-previously-
forecast buildout of the 5G mobile wireless infrastructure as carriers prioritize the buildout of the
transport network ahead of investment in the RAN and the packet core. Virtualized RAN as a trend has
been slower than we anticipated back in 2018, and we now anticipate that only 8% of RAN shipments
will be virtualized by 2023. Our NFVI software forecasts are proportionately lower, as they are a top-
down derivative of the VNF software forecast.

This IDC study presents the worldwide market forecast for telecom network functions virtualization
software (VNF and NFVI) for the 2019–2023 period.

"Communications SPs globally recognize the need to digitally transform their network infrastructure
and build more customer-centric business models. Embracing software-defined networking (SDN)
principles and deploying NFV form factors are a strategic necessity, not only for carriers as they invest
in their future but also for vendors supplying those solutions to the market." — Rajesh Ghai, research
director, Carrier Network Infrastructure research at IDC

ADVICE FOR TECHNOLOGY SUPPLIERS

Given its nascence and high-growth potential, the market for network functions virtualization software
is an attractive market for network equipment provider (NEP) incumbents as well as traditionally
enterprise-focused datacenter and cloud infrastructure software vendors. The following is a list of
actions that vendors can take to showcase their value and distinguish their offerings:

 Play to your historical strengths. NEPs have built telco networks for decades, while
infrastructure software vendors have built the cloud/datacenter architectures that
communications SPs want to embrace. Each set of vendors has specific strengths. IDC
recommends that vendors play to their respective strengths, considering that communications
SPs need both strengths to build their future NFVIs.
 Build or acquire expertise that has historically not been your strength. NEPs need to build or
acquire cloud expertise quickly. Infrastructure software vendors, likewise, need to acquire
telecom domain expertise to be able to succeed in this market. Both capabilities are significant
and need attention by the respective players to succeed.
 Partner, where necessary, to build robust ecosystem offerings. Technology suppliers will need
several capabilities, and it may not be possible to build or acquire all of them. Closely
partnering with other vendors to build out a robust, complementary set of offerings will be
important for their respective success.
 Respect open source. Communications SPs want to control the capex necessary to build new
infrastructure. They have sought to reduce hardware costs by adopting commodity hardware,
where possible. They have signaled their desire to adopt open source infrastructure software

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 in order to build their cloud infrastructure. Considering the shortage of software skills around
the globe, communications SPs are likely to need significant assistance to execute on this
vision. Vendors have the opportunity to step in and provide subscription and service
consumption models, leveraging open source to communications SPs.
 Embrace containers. Communications SPs are not competing with enterprises as they adopt
cloud architectures; however, they are competing against hyperscalers that have adopted
technologies such as containers, microservices, and CUPS that have not yet become
mainstream in the enterprise. NFVI vendors will have to focus on bringing these cutting-edge
NFVI technologies to the communications SPs community to catch their attention. For
instance, containers have a central role to play in delivering 5G network slicing. Using only a
virtual machine (VM)–focused architecture is not going to be very useful in a 5G context.
 Play an active role in industry standards organizations. In a multivendor, multidomain carrier
infrastructure of the future, interoperability and standards will increase in importance.
Technology suppliers need to continue to take a lead in standards bodies to preserve their
relevance.
 Value shift to SDN and orchestration. As carrier networks embrace virtualization, they are
likely to become significantly more complex, especially during the extended transition period
when both physical and virtual infrastructures are deployed together. Leveraging SDN to
programmatically manage network flows and orchestration in order to manage the service life
cycle will be a critical capability that will attract the maximum revenue going forward.
Technology suppliers should position themselves for this future.
 Automate at scale. Automation will be key to reducing opex for communications SPs in the
future. Enhanced automation will be a sought-after capability, and technology suppliers
building automation as a differentiator into all their NFVI solutions will have a far greater
opportunity to succeed in the NFVI market in the future.

©2019 IDC #US45541417 4

MARKET FORECAST

Overall Spending on Telecom NFV Software

IDC expects the overall spending on telecom NFV software (NFVI and VNF) to grow from $4.65 billion
in 2018 to $18.5 billion in 2023 at a CAGR of 31.9% (see Table 1).

TABLE 1

Worldwide Telecom NFVI and VFN Revenue, 2017–2023 ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

Network functions virtualization 564.6 1,009.1 1,386.2 2,060.2 2,937.7 3,822.5 4,744.3 36.3
infrastructure

Growth (%) NA 78.7 37.4 48.6 42.6 30.1 24.1

Virtual network function 2,665.2 3,642.4 4,841.0 6,936.7 9,296.5 11,689.7 13,791.5 30.5

Growth (%) NA 36.7 32.9 43.3 34.0 25.7 18.0

Total 3,229.8 4,651.4 6,227.2 8,996.9 12,234.2 15,512.2 18,535.8 31.9

Growth (%) NA 44.0 33.9 44.5 36.0 26.8 19.5

Source: IDC, 2019

As carriers continue to drive toward greater agility, flexibility, efficiency, and agile innovation in their
respective networks, the virtualization of network functions will become the norm across all domains of
carrier networks. IDC's VNF forecast is a testament to that trend.

NFVI software is expected to grow at a slightly faster CAGR when compared with VNFs, reflecting
IDC's view that network complexity will increase significantly as VNFs proliferate in carrier networks.
The key to managing this complexity and thus harnessing the promise of virtualized infrastructure will
be carrier investment in software-defined networking, automation, infrastructure management, and
orchestration, especially in the outer years of the forecast period.

Network Functions Virtualization Infrastructure

IDC expects the NFVI market to grow from $1.0 billion in 2018 to $4.7 billion in 2023 at a CAGR of 36.3%
(see Table 2).

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 TABLE 2

Worldwide Telecom NFVI Revenue by Segment, 2017–2023 ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

Compute 208.0 356.0 435.7 554.9 697.2 818.3 937.8 21.4

Growth (%) NA 71.2 22.4 27.4 25.6 17.4 14.6

Networking 149.6 245.0 343.7 520.3 743.7 970.2 1,186.1 37.1

Growth (%) NA 63.8 40.3 51.4 43.0 30.5 22.2

Storage 25.0 28.0 38.7 69.4 93.0 140.3 165.5 42.7

Growth (%) NA 12.0 38.3 79.1 34.0 50.9 18.0

Management 157.0 289.0 384.1 554.9 762.3 970.2 1,172.3 32.3

Growth (%) NA 84.1 32.9 44.5 37.4 27.3 20.8

Orchestration 25.0 91.1 184.0 360.7 641.5 923.5 1,282.6 69.7

Growth (%) NA 264.2 102.0 96.1 77.8 44.0 38.9

Total 564.6 1,009.1 1,386.2 2,060.2 2,937.7 3,822.5 4,744.3 36.3

Growth (%) NA 78.7 37.4 48.6 42.6 30.1 24.1

Source: IDC, 2019

IDC expects that over the forecast period, the slowest-growing component of NFVI to be compute
(virtual machines and containers) and the fastest-growing component to be orchestration, with CAGRs
of 21.4% and 69.7%, respectively. As a result, compute, which is the largest segment of the NFVI
market today, will drop to fourth place by 2023, only ahead of storage. IDC believes that growth in the
compute segment will slow down in the outer years as the market commoditizes, the pace of
innovation in the segment slows, open-source pressure increases, and value shifts to networking,
virtual infrastructure management (VIM), and orchestration.

IDC expects storage to continue to lag other segments in revenue and growth over the forecast period,
given the fact that implementations of solutions such as hyperconverged infrastructure (HCI) continue
to be low within telco networks.

IDC believes that the automation of network infrastructure is the number 1 carrier need across all
domains. It is the only way carriers can tame opex challenges, monetize their infrastructure investments
more effectively, and increase their operating margins in the future. Key to network automation is the
ability to programmatically manage and orchestrate network infrastructure. Software-defined networking

©2019 IDC #US45541417 6

will be a critical building block in the drive toward greater network automation. As such, IDC expects SDN
(i.e., network operating system software, SDN controllers, and other associated network automation
solutions such as intent-driven networking) to display healthy growth over the forecast period. IDC
forecasts that networking will grow from $245 million in 2018 to $1.2 billion in 2023 at a CAGR of 37.1%
and will be the second largest segment of the NFVI market in 2023 behind orchestration.

As networks become virtualized, they will be expected to deliver multiple services over a common
infrastructure. Infrastructure management and orchestration will be table stakes as carriers attempt to
harness infrastructure complexity and seamlessly manage and orchestrate the service life cycle across
disparate infrastructure with multiple use cases that apply to a diverse set of customers. IDC expects
the management segment within NFVI to reach $1.17 billion in 2023 at a CAGR of 32.3%.
Orchestration is expected to reach $1.28 billion at a CAGR of 69.7% over the forecast period.

The value in the NFVI stack shifts away from compute to networking, management, and orchestration
(see Table 3).

TABLE 3

Worldwide Telecom NFVI Revenue Share by Segment, 2017–2023 (%)

2017 2018 2019 2020 2021 2022 2023

Compute 36.8 35.3 31.4 26.9 23.7 21.4 19.8

Networking 26.5 24.3 24.8 25.3 25.3 25.4 25.0

Storage 4.4 2.8 2.8 3.4 3.2 3.7 3.5

Management 27.8 28.6 27.7 26.9 25.9 25.4 24.7

Orchestration 4.4 9.0 13.3 17.5 21.8 24.2 27.0

Aggregate NFVI market 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: IDC, 2019

Virtual Network Functions

The NFVI market forecasts provided in the previous sections are based on a bottom-up preliminary
VNF forecast across the five telco domains:

 Core and backbone transport (core and edge routing and optical)
 Wireless infrastructure (core, RAN, and IMS)
 Mobile backhaul
 Access (EAD, PON, and CCAP)
 CPE

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Overall, IDC expects the VNF market to grow from $3.6 billion in 2018 to $13.8 billion in 2023 at a
CAGR of 30.5%.

Table 4 presents the VNF market forecast in terms of the five telco domains.

TABLE 4

Worldwide Telecom VNF Revenue by Segment, 2017–2023 ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

Core transport network 105.2 236.1 426.0 833.0 1,164.0 1,580.0 1,900.0 51.7

Growth (%) NA 124.5 80.4 95.5 39.7 35.7 20.3

Mobile infrastructure 2,230.0 2,640.0 3,150.0 4,100.0 5,200.0 6,300.0 7,600.0 23.5

Growth (%) NA 18.4 19.3 30.2 26.8 21.2 20.6

Mobile backhaul 26.5 107.0 209.0 369.5 574.3 766.0 911.0 53.5

Growth (%) NA 303.5 95.3 76.8 55.4 33.4 18.9

Access 20.0 125.0 223.0 328.0 573.0 802.5 854.5 46.9

Growth (%) NA 525.0 78.4 47.1 74.7 40.1 6.5

CPE 283.5 534.2 833.0 1,306.2 1,785.2 2,241.2 2,526.0 36.4

Growth (%) NA 88.5 55.9 56.8 36.7 25.5 12.7

Total 2,665.2 3,642.4 4,841.0 6,936.7 9,296.5 11,689.7 13,791.5 30.5

Growth (%) NA 36.7 32.9 43.3 34.0 25.7 18.0

Source: IDC, 2019

Control and User Plane Separation

One of the key architectural constructs underpinning the move to virtualized carrier infrastructure in
carriers is control and user plane separation. This idea has been discussed mainly in the context of the
evolved packet core or the 5G packet core as a means to enable low latency use cases. Lately, we
have seen implementations of the idea in BNG use cases as well as in SD-WAN. The main concept
behind control and user plane separation is to extract and centralize the user management functions of
multiple network elements, forming a unified and centralized control plane, and to preserve the
traditional network elements control plane and forwarding plane on the device in the form of a user
plane. This architecture allows carriers to host the control plane functions in a centralized virtualized
cloud deployment while allowing the data plane functions to be hosted on the network element or

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device. This way, the control plane functions consume resources independently of the user plane
functions and can thus scale independently.

The architecture provides significant flexibility in both network development and network operation.
Control plane software can be developed independent of the hardware and the user plane if the APIs
and connections are preserved. As the network scales, the carrier can add more network elements
and connect them to the existing control plane cloud. If the network needs more functions or services,
new features can be added to the control plane software via a software upgrade or new applications
can be hosted adjacent to the control plane functions and service chained. IDC anticipates this
architecture, which has been deployed in use cases such as EPC and BNG, to see more widespread
deployment in the future across all network elements such as routers, optical hardware, and access
equipment. This idea underpins some of the forecasts discussed in the sections that follow.

FIGURE 2

CUPS Deployment in BNG

Source: ietf.org, October 2018

©2019 IDC #US45541417 9

Core Transport Network VNF Forecast
IDC expects the VNF market for core transport network functions in carrier networks to grow from $236.1
million in 2018 to $1.9 billion in 2023 (see Table 5). The segments likely to see the fastest growth will be
core routing and optical virtualization, driven by the concept of CUPS discussed previously. These
segments have seen minimal virtualization today, but IDC expects the CUPS architectural construct to
drive increased use of virtualized control planes in the future. Edge routing should also see greater
penetration of VNFs over the forecast period as more central offices and cable headends get virtualized
and as use cases such as BNG see greater virtualization and the adoption of CUPS.

TABLE 5

Worldwide Telecom VNF Revenue, 2017–2023: Core Transport Network ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

Core routing 3,198.0 3,429.2 3,600.1 3,778.8 3,989.5 4,198.6 4,397.6 5.1

Growth (%) NA 7.2 5.0 5.0 5.6 5.2 4.7

Core routing — virtualized 3.2 17.1 67.0 230.0 350.0 510.0 590.0 102.9
control plane

Growth (%) NA 436.2 290.8 243.3 52.2 45.7 15.7

Edge routing (excludes MBH) 4,906.8 4,981.1 4,869.0 4,907.0 5,308.0 5,662.0 5,857.0 3.3

Growth (%) NA 1.5 -2.3 0.8 8.2 6.7 3.4

Virtualized edge routing and 82.0 189.0 309.0 478.0 604.0 722.0 800.0 33.5
virtualized control plane

Growth (%) NA 130.5 63.5 54.7 26.4 19.5 10.8

Optical hardware (excluding 6,247.2 6,454.2 6,521.0 6,939.9 6,804.0 6,589.7 6,523.4 0.2
PON access and MBH)

Growth (%) NA 3.3 1.0 6.4 -2.0 -3.1 -1.0

Optical — virtualized control 20.0 30.0 50.0 125.0 210.0 348.0 510.0 76.2
plane

Growth (%) NA 50.0 66.7 150.0 68.0 65.7 46.6

VNF total 105.2 236.1 426.0 833.0 1,164.0 1,580.0 1,900.0 51.7

Growth (%) NA 124.5 80.4 95.5 39.7 35.7 20.3

Source: IDC, 2019

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Mobile Infrastructure VNF Forecast
Mobile infrastructure is expected to be the largest contributor to the global VNF market as the buildout
of 5G networks drives carriers to not only continue virtualizing the packet core and IMS but also extend
the effort slowly but steadily to the RAN. While IDC expects only 8% of the RAN to be virtualized by
2023, the promise of hosting multiple use cases spanning the bandwidth, latency, and connections
spectrum on a common 5G infrastructure is likely to spur more carriers to virtualize their networks end-
to-end in the quest for network slicing. Hence IDC expects RAN virtualization to pick up at the fastest
rate, given the relatively small base of deployments in 2018 (see Table 6).

TABLE 6

Worldwide Telecom VNF Revenue, 2017–2023: Mobile Infrastructure ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

RAN 39,000.0 38,000.0 36,000.0 33,000.0 31,000.0 30,000.0 30,000.0 -4.6

Growth (%) NA -2.6 -5.3 -8.3 -6.1 -3.2 0.0

Virtualized RAN 30.0 40.0 150.0 500.0 900.0 1,400.0 2,400.0 126.8

Growth (%) NA 33.3 275.0 233.3 80.0 55.6 71.4

Total mobile core 3,623.0 3,684.4 4,150.0 4,300.0 4,650.0 4,650.0 4,820.0 5.5

Growth (%) NA 1.7 12.6 3.6 8.1 0.0 3.7

vEPC and virtualized core 1,000.0 1,200.0 1,400.0 1,800.0 2,300.0 2,700.0 2,900.0 19.3

Growth (%) NA 20.0 16.7 28.6 27.8 17.4 7.4

IMS 4,500.0 4,400.0 4,300.0 4,200.0 4,100.0 4,000.0 4,000.0 -1.9

Growth (%) NA -2.2 -2.3 -2.3 -2.4 -2.4 0.0

vIMS 1,200.0 1,400.0 1,600.0 1,800.0 2,000.0 2,200.0 2,300.0

Growth (%) NA 16.7 14.3 12.5 11.1 10.0 4.5

VNF total 2,230.0 2,640.0 3,150.0 4,100.0 5,200.0 6,300.0 7,600.0 23.5

Growth (%) NA 18.4 19.3 30.2 26.8 21.2 20.6

Source: IDC, 2019

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Mobile Backhaul VNF Forecast
Mobile backhaul represents the least virtualized of all carrier domains today across all three segments:
routing, optical, and microwave. However, the virtualization of cell site edge routers and the adoption
of CUPS across all these domains is likely to drive the deployment of VNFs across the forecast period.
IDC expects the mobile backhaul VNF market to grow from $107 million in 2018 to $911 million in
2023 at a CAGR of 53.5% (see Table 7).

TABLE 7

Worldwide Telecom VNF Revenue, 2017–2023: Mobile Backhaul ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

Routing backhaul 3,490.0 3,595.0 3,800.0 4,100.0 4,000.0 3,900.0 3,950.0 1.9

Growth (%) NA 3.0 5.7 7.9 -2.4 -2.5 1.3

Virtual routing and control plane 18.0 90.0 173.0 259.5 363.3 505.0 620.0 47.1
virtualization

Growth (%) NA 400.0 92.2 50.0 40.0 39.0 22.8

Optical backhaul 2,188.0 2,213.0 2,434.3 2,361.3 2,479.3 2,727.3 3,000.0 6.3

Growth (%) NA 1.1 10.0 -3.0 5.0 10.0 10.0

Control plane virtualization 5.0 9.0 24.0 56.0 89.0 116.0 135.0 71.9

Growth (%) NA 80.0 166.7 133.3 58.9 30.3 16.4

Microwave backhaul 3,516.2 3,445.9 3,377.0 3,309.5 3,342.6 3,376.0 3,401.0 -0.3

Growth (%) NA -2.0 -2.0 -2.0 1.0 1.0 0.7

Control plane virtualization 3.5 8.0 12.0 54.0 122.0 145.0 156.0 81.1

Growth (%) NA 127.5 50.0 350.0 125.9 18.9 7.6

VNF total 26.5 107.0 209.0 369.5 574.3 766.0 911.0 53.5

Growth (%) NA 303.5 95.3 76.8 55.4 33.4 18.9

Source: IDC, 2019

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Access VNF Forecast
The access VNF market, which includes VNFs deployed in the PON, EAD, and CCAP markets, is
expected to grow from $125 million in 2018 to about $855 million in 2023 at a CAGR of 46.9%. The
majority of the contribution will likely come from the virtualization of the CMTS in the cable headend,
followed by the effect of the adoption of CUPS in the EAD and PON markets (see Table 8).

TABLE 8

Worldwide Telecom VNF Revenue, 2017–2023: Access ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

EAD 520.0 534.0 544.0 566.0 588.0 610.0 625.0 3.2

Growth (%) NA 2.7 1.9 4.0 3.9 3.7 2.5

PON 1,400.0 1,450.0 1,550.0 1,519.0 1,549.4 1,518.4 1,563.9 1.5

Growth (%) NA 3.6 6.9 -2.0 2.0 -2.0 3.0

Virtual OLT, SDA, and – 5.0 35.0 72.0 95.0 118.0 133.0 92.7
virtualized CP

Growth (%) NA NA 600.0 105.7 31.9 24.2 12.7

CCAP 2,500.0 2,375.0 2,446.3 2,519.6 2,595.2 2,673.1 2,700.0 2.6

Growth (%) NA -5.0 3.0 3.0 3.0 3.0 1.0

Virtual CMTS 20.0 120.0 188.0 256.0 478.0 684.5 721.5 43.2

Growth (%) NA 500.0 56.7 36.2 86.7 43.2 5.4

VNF total 20.0 125.0 223.0 328.0 573.0 802.5 854.5 46.9

Growth (%) NA 525.0 78.4 47.1 74.7 40.1 6.5

Source: IDC, 2019

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CPE VNF Forecast
The virtualized CPE VNF market is expected to grow from $534.2 million in 2018 to $2.52 billion in
2023 (see Table 9).

TABLE 9

Worldwide Telecom VNF Revenue, 2017–2023: CPE ($M)

2018–2023
2017 2018 2019 2020 2021 2022 2023 CAGR (%)

SD-WAN router/forwarder 92.1 175.7 254.9 371.5 435.7 474.1 502.0 23.4

Growth (%) NA 90.8 45.1 45.7 17.3 8.8 5.9

Firewall/NGFW/UTM 51.5 119.0 214.7 420.2 669.6 904.3 1,081.0 55.5

Growth (%) NA 131.1 80.4 95.7 59.4 35.1 19.5

WAN optimization 43.1 52.1 56.8 57.6 57.0 49.0 45.0 -2.9

Growth (%) NA 20.9 9.0 1.4 -1.0 -14.0 -8.2

WLAN controller 32.1 53.2 78.1 106.9 145.5 186.3 210.0 31.6

Growth (%) NA 65.7 46.8 36.9 36.1 28.0 12.7

SBC 17.3 32.6 49.5 93.9 147.0 209.8 234.0 48.3

Growth (%) NA 89.0 51.8 89.7 56.5 42.7 11.5

Network management 33.5 70.0 119.5 164.9 203.4 246.0 255.0 29.5

Growth (%) NA 109.0 70.7 37.9 23.4 20.9 3.7

Other 13.9 31.6 59.5 91.2 127.0 171.7 199.0 44.5

Growth (%) NA 127.3 88.3 53.3 39.3 35.2 15.9

VNF total 283.5 534.2 833.0 1,306.2 1,785.2 2,241.2 2,526.0 36.4

Growth (%) NA 88.5 55.9 56.8 36.7 25.5 12.7

Source: IDC, 2019

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MARKET CONTEXT

Carriers (communications SPs) globally are grappling with the triple challenges of commoditization,
competition, and complexity, which have severely limited their ability to grow their revenue or their
margins. They have been challenged in their ability to monetize their significant infrastructure
investments as reflected in the growing gap between revenue and bandwidth growth. Meanwhile,
nimble hyperscale and OTT competitors continue to chip away at their ability to create new value,
which continues to pressure communications SP margins. Furthermore, communications SPs' ability to
innovate and compete in this emerging landscape has been plagued by the waves of significant
infrastructure investment they have made over the years (and the resulting complexity therein) (see
Figure 3).

FIGURE 3

Carriers Continue to Face Acute Challenges

Source: IDC, 2019

Communications SPs globally recognize the need to digitally transform their network infrastructure and
develop more customer-centric business models that are built around monetization. They need the
ability to respond to a rapidly changing environment. They also need to continue to generate new
revenue streams such as new business network services while legacy lucrative revenue streams such
as MPLS come under pressure. In the face of constant margin pressure, they need the ability to
improve operational efficiencies through more efficient and automated infrastructure. Finally, they also
need the ability to create new customer experiences and drive customer retention in an increasingly
competitive landscape. In other words, communications SPs are seeking greater flexibility, efficiency,
innovation, and agility from their carrier network infrastructure (see Figure 4).

©2019 IDC #US45541417 15

FIGURE 4

Carrier DX Is a Strategic Priority

Source: IDC, 2019

Against this backdrop, the carrier network infrastructure market is undergoing profound change driven
by innovation and disruption that carriers are demanding, and most industry vendors believe it is
necessary to survive and thrive in the future. Embracing software-defined networking principles and
deploying NFV form factors are a strategic necessity, not only for carriers as they invest in the future
but also for vendors supplying those solutions to the market.

All carrier domains are facing the winds of change. Over the next several years, we expect a
significant portion of CNI to be decoupled into underlying infrastructure as well as the virtual network
functions that reside on top of that.

Drivers and Inhibitors

Drivers
Digital Transformation in Communications Service Providers
 Assumption: In the big picture, digital transformation (DX) — the use of 3rd Platform
technologies to create new business value through digitally enhanced offerings, operations,
and relationships — will remain the leading driver of communications SP spending during the
forecast period.
 Impact: DX leverages the cloud services delivery model, and carrier network infrastructure is
having to be modernized and overhauled to meet the requirements for agility and flexibility in a
cloud context.

©2019 IDC #US45541417 16

5G
 Assumption: 5G's appeal is in its ability to drive new sources of revenue through new use
cases and new services on a common infrastructure. This can be achieved by a concept
called network slicing. Network slicing is an end-to-end virtual network architecture based on
the complete abstraction of the underlying physical network infrastructure. SDN and NFV are
core elements of network slicing.
 Impact: As the 5G buildout begins to slowly accelerate toward the end of 2019, IDC expects
the corresponding end-to-end wireless network infrastructure to be built using SDN and NFV
principles on a foundation of NFVI, with the vision of supporting network slicing.
Control and User Plane Separation
 Assumption: One of the key architectural constructs underpinning the move to virtualized
carrier infrastructure in carriers is control and user plane separation. The main concept behind
control and user plane separation is to extract and centralize the user management functions
of multiple network elements, forming a unified and centralized control plane, and to preserve
the traditional network elements control plane and forwarding plane on the device in the form
of a user plane. This architecture allows carriers to host the control plane functions in a
centralized virtualized cloud deployment while allowing the data plane functions to be hosted
on the network element or device.
 Impact: The architecture provides significant flexibility in both network development and
network operation. Control plane software can be developed independent of the hardware and
the user plane if the APIs and connections are preserved. As the network scales, the carrier
can add more network elements and connect them to the existing control plane cloud. If the
network needs more functions or services, new features can be added to the control plane
software via a software upgrade or new applications can be hosted adjacent to the control
plane functions and service chained. IDC anticipates this architecture, which has been
deployed in use cases such as EPC and BNG, to see more widespread deployment in the
future across all network elements such as routers, optical hardware, and access equipment.
Inhibitors
Open Source
 Assumption: Communications SPs have indicated a preference for leveraging open source
software to keep the capex required to build the new carrier network infrastructure under check.
 Impact: Vendors have realigned themselves with this communications SP priority and have
offered their own distributions of common open source software such as OpenStack and
Kubernetes. This will result in a change in the communications SP software consumption
model and a shift to a subscription and service revenue model for vendors.
Virtual Machines or Containers?
 Assumption: As hyperscale public cloud vendors have made the transition to containers as
their unit of infrastructure and have experienced the benefits of speed, portability, and
efficiency, it has become clear to carriers that a similar approach would be more beneficial
than one based on virtual machines.
 Impact: However, the industry and the open source community realize that there is significant
work left to be done to make containers the unit of infrastructure in the telco cloud. Multitenant
containers running on bare metal servers utilize the same Linux kernel to communicate with
the external environment, which exposes container traffic to a security risk that is not
acceptable in the carrier context.

©2019 IDC #US45541417 17

Significant Market Developments
 The ratification of 5G standards represents a key milestone for the wireless infrastructure
industry, which has spurred several communications SPs that had begun trials in the pre-5G
standards world to begin deployments and other fence sitters to begin trials. We expect these
standards efforts to provide a significant catalyst to the adoption of virtualized architectures
and NFVI over the next few years.
 The rise of SD-WAN and now SD-Branch over the past couple of years has spurred
enterprises and service providers to consider virtualized infrastructure at the network edge.
 CORD and HERD projects have come to the fore and enabled communications SPs globally
to consider virtualizing their central offices and cable headends to drive greater flexibility,
agility, and efficiency in provisioning services to their enterprise and business customers.

Changes from Prior Forecast

In 2018, IDC published the NFVI and VNF software forecasts in two separate documents. The primary
reason for the reduction in forecast numbers across the two forecasts is a slower-than-previously-
forecast buildout of the 5G mobile wireless infrastructure as carriers prioritize the buildout of the core
transport network ahead of investment in the RAN and the packet core. Virtualized RAN as a trend has
been slower than we anticipated back in 2018, and we now anticipate only 8% virtualization of the
RAN by 2023. Our NFVI software forecasts are proportionately lower as they are a top-down derivative
of the VNF software forecast (see Tables 10 and 11 and Figures 5 and 6).

TABLE 10

Worldwide Telecom NFVI Revenue, 2017–2023: Comparison of August 2018 and

September 2019 Forecasts ($M)

2017 2018 2019 2020 2021 2022 2023

September 2019 forecast 564.6 1,009.1 1,386.2 2,060.2 2,937.7 3,822.5 4,744.3

August 2018 forecast 564.6 1,123.2 1,938.4 3,347.0 4,615.9 5,581.6 NA

Notes:

See Worldwide Telecom Network Functions Virtualization Infrastructure Forecast, 2018–2022 (IDC #US44212617, August
2018) for prior forecast.

Historical market values presented here are as published in prior IDC documents based on the market taxonomies and current
U.S. dollar exchange rates existing at the time the data was originally published. For more details, see IDC's Forecast Scenario
Assumptions for the ICT Markets and Historical Market Values and Exchange Rates, 4Q18 (IDC #US43652019, April 2019).

Source: IDC, 2019

©2019 IDC #US45541417 18

FIGURE 5

Worldwide Telecom NFVI Revenue, 2017–2023: Comparison of August 2018 and

September 2019 Forecasts

Source: IDC, 2019

TABLE 11

Worldwide Telecom VNF Revenue, 2017–2023: Comparison of September 2018

and September 2019 Forecasts ($M)

2017 2018 2019 2020 2021 2022 2023

September 2019 forecast 2,665.2 3,642.4 4,841.0 6,936.7 9,296.5 11,689.7 13,791.5

September 2018 forecast 2,518.4 4,054.7 6,388.7 9,674.4 13,327.7 16,389.5 NA

Notes:

See Worldwide Telecom Virtual Network Functions Forecast, 2018–2022 (IDC #US44250417, September 2018) for prior forecast.
Historical market values presented here are as published in prior IDC documents based on the market taxonomies and current
U.S. dollar exchange rates existing at the time the data was originally published. For more details, see IDC's Forecast Scenario
Assumptions for the ICT Markets and Historical Market Values and Exchange Rates, 4Q18 (IDC #US43652019, April 2019).

Source: IDC, 2019

©2019 IDC #US45541417 19

FIGURE 6

Worldwide Telecom VNF Revenue, 2017–2023: Comparison of September 2018 and

September 2019 Forecasts

Source: IDC, 2019

MARKET DEFINITION

In defining network functions virtualization infrastructure (NFVI) and virtual network functions (VNFs),
IDC aligns with the European Telecommunications Standards Institute (ETSI) proposed architecture.
NFV is an architecture for virtualizing communications SP network functions. Within this architecture,
VNFs are defined in software, which runs on underlying general IT hardware (commercially available
servers, storage, and IP networking). NFV architectural principles are published by the NFV Industry
Specification Group (ISG), a body working under ETSI. Although there may be other ways of
virtualizing network functions, this document focuses on VNF deployments compliant to ETSI's
architectural framework (see Figure 7).

The VNF and NFVI market forecasts provided in this document are based on a bottoms-up forecast
across subsegments in the following telco domains:

 Core and backbone transport: Core and edge routing and optical
 Wireless infrastructure: Core, RAN, and IMS
 Mobile backhaul
 Access: EAD, PON and CCAP
 CPE

©2019 IDC #US45541417 20

FIGURE 7

ETSI Architectural Framework

Source: ETSI and IDC, 2019

The NFVI is the foundation of the overall NFV architecture. It provides the physical compute, storage,
and networking hardware that hosts the VNFs. Each NFVI block can be thought of as an NFVI node,
and many nodes can be deployed and controlled geographically. NFVI nodes are deployed at multiple
sites and regions to provide service high availability and to support locality and workload latency
requirements. The hypervisor provides a virtualization layer that allows for workloads that are agnostic
to the underlying hardware. With this approach, operators select hardware from their preferred vendors
at competitive prices as well as upgrade hardware independent of its workloads.

The NFVI market segments are:

 Software-defined compute. This segment includes virtual machine software and container
infrastructure utilized to create VNFs within carrier networks. It does not include the revenue
related to VNFs, which is captured within the traditional domains. In a significant difference
with how IDC has generally tracked the overall software-defined compute market, cloud
system software and virtual infrastructure management (VIM) software are not part of this
segment but are included under the management segment.

©2019 IDC #US45541417 21

  Software-defined networking (SDN). This segment includes SDN controllers and SDN
application layer security and services.
 Software-defined storage. This segment includes storage controller software used in virtual
cloud infrastructure deployments within carrier networks. It also includes hyperconverged
infrastructure (HCI).
 Management. This segment consists of virtual infrastructure management software and cloud
system software utilized for infrastructure management, monitoring, visibility, and analytics.
 Orchestration. This segment includes software utilized in service creation, operation, and life-
cycle management via the orchestration of virtual network functions across all network
domains. Automation software for telco domains is also included in this segment.

METHODOLOGY

The information presented in this study is based upon key findings from a broad range of data sources
including:

 In-depth interviews with network infrastructure vendors, resellers, and systems integrators
 Financial statements of network infrastructure vendors
 Key findings from primary research with communications SPs conducted by IDC in networking
infrastructure
 Analysis of existing IDC research in the following markets:
 Communications SP network infrastructure (physical and virtual)
 Virtual infrastructure:
 Software-defined compute
 SDN controller software
 Software-defined storage controller software
 IT operations management (ITOM) software
 IT automation and storage controller software (or IT automation and configuration
management [ITACM] software)
 x86 server (telco network usage)
Note: All numbers in this document may not be exact due to rounding.

RELATED RESEARCH

 Market Analysis Perspective: Worldwide Carrier Network Infrastructure, 2019 (IDC

#US45465817, September 2019)
 Worldwide Carrier Multi-Access Edge Cloud Software Forecast, 2019-2023 (IDC
#US45120517, June 2019)
 IDC's Forecast Scenario Assumptions for the ICT Markets and Historical Market Values and
Exchange Rates, 4Q18 (IDC #US43652019, April 2019)
 The Strategic Importance and Urgency of a Near-Term Carrier Multi-Access Edge Cloud
Buildout: Key to 5G, Virtual Network Services, Content Delivery, and AI/ML-Enabled Services
and Operations (IDC #US44871717, February 2019)

©2019 IDC #US45541417 22

  Worldwide vCPE/uCPE Forecast, 2018-2022 (IDC #US44484617, December 2018)
 Worldwide 5G Network Infrastructure Forecast, 2018-2022 (IDC #US44392218, November
2018)
 Worldwide Telecom Virtual Network Functions Forecast, 2018-2022 (IDC #US44250417,
September 2018)
 Worldwide Telecom Network Functions Virtualization Infrastructure Forecast, 2018-2022 (IDC
#US44212617, August 2018)
 IDC's Worldwide Carrier Network Infrastructure Taxonomy, 2018 (IDC #US44194818, August
2018)

©2019 IDC #US45541417 23

About IDC
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory
services, and events for the information technology, telecommunications and consumer technology
markets. IDC helps IT professionals, business executives, and the investment community make fact-
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