Telco cloud deployment tracker: What is happening with SD-WAN in 2023?

What is happening with SD-WAN in 2023?

The state of the SD-WAN market has changed significantly since the 2010s, when it emerged as prominent driver of telco cloud activity, centred on North America. SD-WAN remains strong, with nearly a quarter of telco cloud deployments in 2022 having SD-WAN as the primary purpose, and has spread across the globe.

Every update of the Telco cloud deployment tracker includes a review of the confirmed or completed telco cloud deployments up to the end of the preceding quarter, and a deep dive into a significant trend revealed in the data. SD-WAN, SASE, and the evolution towards NaaS is in the spotlight in this update.

SD-WAN: A virtualisation success story

SD-WAN is an example of where a technology trend – Network Functions Virtualisation and Software Defined Networking (NFV and SDN) – fed directly into a successful commercial product. It comprises a bundle of Virtualised Network Functions (VNFs), such as routing, WAN optimisation and firewall, placed under centralised SDN control to deliver optimised, application-specific traffic management and prioritisation across the multi-domain, multi-technology enterprise network.

Initially developed and marketed as an overlay service by ISVs – a purely software-based service managed independently of the underlying network platforms – SD-WAN started to be widely delivered by telcos from 2017 as part of their managed enterprise networking portfolios. Deployments in this first wave of telco SD-WAN peaked in 2018, with 45 deployments focused on SD-WAN in that year.

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SASE is a response to the increasing cloudification of SD-WAN

Telcos have not driven innovation in the SD-WAN field. In terms of number of directly served enterprise customers and technology evolution, vendors dominate. Secure Access Service Edge (SASE) is one such vendor-led solution. It combines SD-WAN with several cloud-based security functions designed to protect against cyber attacks as network traffic crosses the borders between private and public networks and clouds.

Total number of SD-WAN and SASE deployments, 2016-2023

Source: STL Partners

SASE first emerged as a distinct offering in July 2019; but telcos lagged, and the first deployments by telcos were recorded only in 2021.

The increased focus on cloud-delivered security reflects the growing cloudification of WAN services themselves, with larger enterprises running application workloads and traffic across multiple clouds and bypassing the telco WAN altogether.

Related research

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Cloud native: Just another technology generation?

Cloud native networking: Telecoms’ latest adventure

As a term, cloud native has currency in telecoms networking. 5G has contributed to the recent industry-wide interest in adopting cloud native applications for networks. This is because the 5G standalone core networks (5G SA) that operators are now planning (and some have started deploying) are intended to run as software that is specified and architected following cloud native principles.

Within telecoms, thinking about cloud native tends to centre on the next phase of moving network functions into a software environment, building on lessons learned with NFV/SDN. Viewed from this perspective, cloud native is the next step in the telecoms industry technology evolution: from analogue to digital circuit-switched to digital IP to virtualised to cloud native.

Telcos’ business model is reaching end-of-life

The rise of mobile telephony and fixed and mobile broadband means that telecoms operators have enjoyed 20 years of strong growth in all major markets. That growth has stalled. It happened in Japan and South Korea as early as 2005, in Europe from 2012 or so and, market by market, others have followed. STL Partners forecasts that, apart from Africa, all regions will see a compound annual growth rate (CAGR) below 3% for both fixed and mobile services for the next three years. Ignoring pandemic ‘blips’, we forecast a CAGR of less than 1% per annum globally. This amounts to a decline in real terms.

The telecoms industry is reaching the end of its last growth cycle

The telecoms industry’s response to this slowdown has been to continue to invest capital in better networks – fibre, 4G, 5G – to secure more customers by offering more for less. Unfortunately, as competitors also upgrade their networks, connectivity has become commoditised as value has shifted to the network-independent services that run over them.

In other words, the advantage that telcos had when only telecoms services could run on telecoms networks has gone: the defensive moat from owning fibre or spectrum has been breached. Future value comes from service innovation not from capital expenditure. The chart below sums the problem up: seven internet players generate around 65% of the revenue generated by 165 operators globally, but have a c. 50% bigger combined market capitalisation. This is because the capital markets believe that revenue and profit growth will accrue to these service innovators rather than telecoms operators.

Tech companies are more highly valued than telcos

Understand, then emulate the operating model

Operators have been aspiring to learn from technology firms so they can transform their operations and services. But changes have been slow, and it is difficult to point to many ‘poster child’ operators that successfully made a move beyond pure telecommunications. Partly this is due to a mismatch between corporate announcements and their investment policies. Too often we hear CEOs express a desire to change their organisations and that they intend to offer a host of exciting new services, only to see that aspiration not borne out when they allocate resources. Where other tech companies make substantial investments in R&D and product development, operators continue to invest miniscule amounts in service innovation (especially in comparison to what is poured into the network itself).

Telco vs tech-co investment models

STL Partners believes that many of the network-related activities that will enable operators to reduce capital expenditure, such as cloud-native networking, will also enable them to automate and integrate processes and systems so they are more flexible and agile at introducing new services. So, an agile software-oriented infrastructure will enable changes in business processes such as product development and product management, partnering, and customer care – if management prioritises investment and drives change in these areas. Cloud native business practices and software were developed by technology companies (and then widely adopted by enterprise IT functions) as a means to deliver greater innovation at scale whilst reducing the level of capital relative to revenue.

Our belief is that financial and operational developments need to happen in unison and operators need to move quickly and with urgency to a new operating model supported by cloud native practices and technology, or face sharp declines in ROI.

Executive Summary
Table of Figures
Preface
Cloud native networking: Telecoms’ latest adventure
Telcos’ business model is reaching end-of-life
- Understand, then emulate the operating model
- The coordination age – a new role for telcos
- 5G: Just another G?
- Cloud native: Just another technology generation?
Different perspectives: Internal ability, timing …and what it means to be a network operator
- Organisational readiness, skills and culture
- Target operating model and ecosystem
- Assembly versus Engineering
- Wider perceptions across the business functions
- Operator segment 1: Risk of complacency
- Operator segment 2: Align for action
- Operator segment 3: Urgent re-evaluation
- Operator segment 4: Stay focused and on track
Appendix 1
- Interviewee overview
Appendix 2
- Defining Cloud Native
- There is consensus on the meaning of cloud native software and applicability to networks
- Agreement on the benefits: automation at scale for reliability and faster time to market
- …and changing supplier relationships

NFV/SDN deployment pathways: Three telco futures

Introduction: Three pathways to virtualisation

The aim of this report is to set out and analyse three strategic pathways to the implementation of Network Functions Virtualisation (NFV) and Software-Defined Networking (SDN) taken by different telcos, and types of telco. We are calling these approaches ‘Technology Evolution’, ‘Service-led Innovation’ and ‘Organisational Transformation’.

We originally formulated the pathways as part of an analysis of the challenges that telcos were confronting as they embarked on their journey to implement NFV and SDN. The analysis was developed during a consulting project undertaken for Cisco Systems in the second half of 2016. In the present report, we are seeking to re-examine the pathways in the light of the experiences of telcos in 2017 – their challenges and successes – as they have continued to develop and deploy NFV / SDN across their networks.

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Pathways and operator examples

Our analysis of the three pathways in the project for Cisco was built on a substantial body of STL research and industry knowledge on NFV and SDN, along with conversations with senior executives at 14 telcos from across the world, which we assigned to one or more of the three approaches. A brief definition of the pathways and the types of operator that typically adhere to them is provided below:

Figure 1: Pathways to virtualisation

Source: STL Partners

It should be noted that the pathways are not mutually exclusive or rigid, i.e. operators – and different business units within operators – can straddle more than one category, and the different approaches to virtualisation are overlapping to some extent. In addition, there is something of a natural progression from one pathway to another. For example, completing large-scale virtualisation programmes (Technology Evolution) then puts operators in a position to develop new use cases addressing customer needs (Service-led Innovation).

We aim to bring out the interplays and progression between these three broad approaches in the present analysis by focusing on three operators that exemplify some of the tensions and contradictions inherent to each of the pathways, insofar as NFV and SDN ultimately embody a transformative dynamic that is disruptive of existing business models and corporate cultures.

We should also note that not all of the examples discussed in the present analysis were included in the previous study undertaken for Cisco and that the material included here is derived from public-domain information, supplemented by conversations with the telcos themselves where they have been willing to share their experiences.

Executive Summary
Introduction: Three pathways to virtualisation
Pathways and operator examples
Vodafone: Technology evolution towards the software-enabled network
Colt: Customer-led innovation of the ‘Network Cloud’
Deutsche Telekom: Organisational transformation towards the ‘network-enabled compute service provider’
Conclusion: The three fundamental strategic choices for telcos around SDN / NFV

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Changing Culture: The Great Barrier

Introduction

On Tuesday 6th December, STL Partners met with 17 executives from telecoms operators in SE Asia, including Singtel, Starhub, M1, Telekom Indonesia, Axiata, Bridge Alliance and Tata Communications. The group was a fairly even mix of C-Level, SVP/VP, and Strategy / ‘Heads of Digital’ roles.

The session was conducted under clear and explicit anti-trust guidelines, and had the objective to review and explore learnings in the strategic and operational transformation of telecoms business models.

Objectives of Transformation

One of STL Partners’ global observations is that all operators have different goals in the pursuit of transformation. This was also true with the group in Singapore, as shown by the following chart of a vote on the priorities assigned to different transformation objectives.

Figure 1 – Transformation priorities are different for every operator

Source: STL Partners

The subsequent discussion showed that behind these votes:

Improving customer engagement (and customer centricity) is a fundamental goal of almost all operators
Operators, like all businesses, want to manage costs, and this is generally a welcome benefit of change
Most operators wish to improve the fundamental agility of their businesses – to become faster to market
For some, creating new revenues from new services is the primary objective, while for others, it is seen as a welcome possibility once the core agility has been improved

What is the outlook for growth for telcos?

STL Partners shared findings from its recent research report Which operator growth strategies will remain viable in 2017 and beyond? that examined the growth performance of 68 operator groups globally over the last seven years.

Figure 2 – The growth performance of 68 global operator groups 2009-16

Source: STL Partners

The overall picture presented was that most telcos had enjoyed a period of good growth in this time, though latterly growth rates have slowed to an average of 2% globally. Many markets, especially in Europe, are now in decline. Voice and messaging revenues have been eroded by substitution from Internet based applications, and data competition has by and large brought strong growth in usage volumes, but not enough to make up for the declines in voice and messaging.

Can data growth ‘save the day’?

A question raised in Europe and discussed again in Asia when this analysis was presented, is whether broadband data sales can offset the declines in voice and messaging revenues. The arguments for and against this are summarised in Figure 3.

Figure 3 – The arguments for and against broadband producing long term growth

Source: STL Partners

Executive Summary
Introduction
Objectives of Transformation
What is the outlook for growth for telcos?
Can data growth ‘save the day’?
Why is transformation so difficult?
The challenge of achieving synergy with the core
So ‘going digital’ is becoming a necessity whatever your strategy
Opportunities for ‘Telco Cloud’ Centred Growth
Models for how to transform
The Publisher / Utility Model
20 transformation metrics that matter
Digital Maturity Model
NFV/SDN Playbook
Case Studies of Transformation in Practice
Telkom Indonesia – Becoming the “King of Digital”
Celcom Axiata – Quick ‘HITx’ to Kick-start Transformation
Conclusion: how to change model and culture together?
1. Establish transformational leadership and vision
2. Empower and motivate people to unlock culture
3. See success through a new lens (and new metrics)
4. Re-engineer the guts of the business

Figure 1 – Transformation priorities are different for every operator
Figure 2 – The growth performance of 68 global operator groups 2009-16
Figure 3 – The arguments for and against broadband producing long term growth
Figure 4 – A clear majority in the group believed broadband will not sustain long-term growth
Figure 5 – Telco ‘digital’ plays have experienced varied success to date
Figure 6 – Telco Cloud services by type
Figure 7 – NTT Docomo is one leading benchmark for new revenue creation
Figure 8 – The ‘Utility’ and ‘Publisher’ Models
Figure 9 – A high level Digital Maturity Model
Figure 10 – The NFV/SDN ‘Playbook’ explained
Figure 11 – Telkom Indonesia’s ‘Digital Telco’ vision
Figure 12 – Telkom Indonesia’s Transformation Key Success Factors and Lessons
Figure 13 – How the HITx programme was delivered
Figure 14 – Which area of transformation has the greatest value, and what requires the greatest effort?
Figure 15 – A new business ‘stack’ for telcos?

Tag: NFV/SDN

NFV/SDN deployment pathways: Three telco futures

Introduction: Three pathways to virtualisation