The second cloud-native wave of NFV is being driven by 5G

Telco cloud deployments are still growing globally

The increasing investments that are being made by operators into 5G, justified based on new use cases which assume extreme sophistication and flexibility in the network, make a better telco cloud an urgent priority. Telco cloud has not yet delivered on its big promise of openness, flexibility, visibility, control, performance at scale, and offering a platform for agile service innovation.

After a slight drop in the total number of deployments in 2019, 2020 is set to be a year of modest growth for telco cloud deployments. We recorded 63 completed deployments from January to July 2020, as well as another 72 pending deployments which we expect to be completed by the end of this year. Finally, we are expecting an additional 45 deployments by December 2020 (it should be noted that this is a conservative estimate, given COVID-19), taking the number of deployments in 2020 to around 180 in total.

NSA 5G core deployments driving growth in 2020

The main driver of growth in the first seven months of 2020 has been deployments of non-standalone (NSA) 5G cores, used to support either completed or upcoming 5G network launches. These deployments have been consistent across all regions, bar Latin America, with the strongest growth seen in Asia-Pacific and North America.

By contrast, the volume of new implementations of SD-WAN and virtualised Evolved Packed Core (vEPC) has declined relative to earlier years, with the EPC (the 4G core) now being superseded by deployments of the NSA 5G core. Looking to Europe specifically, if the trends for the first seven months of 2020 continue throughout the rest of the year, NSA 5G cores will be the leading category of VNF deployed in Europe overall (and across all years). This shows that NFV – or more broadly, virtualisation or telco cloud – is far from running out of steam.

Instead, we see telco cloud as entering a potentially bigger, second phase, based on cloud-native technology and serving as an integral enabler of 5G networks and services. Even so, the NSA 5G core is set to be superseded by the more integrally cloud-native standalone 5G core, which is essential to realising the potential for telco 5G networks to support the plethora of long-anticipated, new use cases across different industry sectors and social needs.

Deployments in Europe will probably fail to reach 2019 levels

Our tracker has recorded 43 deployments – completed and pending – in the first seven months of 2020, compared to a total of 69 in the full year of 2019. Based on our analysis, if we extrapolate the number of deployments in the year to date, this brings us to an estimated total of 57 deployments for 2020 as a whole.

One reason as to why Europe will probably fail to maintain its record of year-on-year growth is that Europe went through its initial surge of 5G network launches in 2019, whereas other regions are now experiencing that in 2020 in contrast. We see the same thing when we look at SD-WAN deployments in Europe, where many telcos have completed their SD-WAN service launches which results in the pace of new deployments receding. Both SD-WAN and NSA 5G core make up the two leading VNFs deployed in Europe from 2014 to July 2020.

Smaller telcos are increasingly entering the scene in Europe

Although the European scene is still dominated by the larger players (i.e. the likes of Vodafone, Telefonica, Deutsche Telekom etc.), we have seen indications that more and more smaller operators are now carrying out virtualisation programmes.

By the end of 2018, we saw a total of 29 telco operators who had deployed VNFs, SDN / SD-WAN or cloud-native functions (CNFs) in Europe. However, by July 2020, this number has gone up to a total of 43 telcos across Europe. This could be driven by the need to keep up with larger domestic competitors in areas such as non-standalone 5G core, virtualisation of the EPC and SD-WAN.

Tipping point for open RAN?

An equally important, cloud-native, virtualised building block for the delivery of such use cases, and for mass-scale/low-latency 5G – open RAN – is making steady strides, particularly via the initiatives of Europe-based telcos. While open RAN is far from being a ‘done deal’, there are plenty of indicators from the activities of Europe-based operators that we may be at a tipping point where open RAN starts to be deployed at scale.

STL Partners will continue to track the progress of cloud-native networks and cloud-centric telco business models, both in the Telco Cloud Tracker and in more focused reports in our Telco Cloud stream. We will be discussing the state of the SD-WAN market in more detail in the next release of our tracker, with our analysis focusing on North America.

Author: Giulia Bollen Gandolfo is a Consultant at STL Partners, specialising in telco cloud, BSS platforms and how e-Commerce channels can impact telco bottom lines.