ROI considerations will force NFV to work overtime
A significant challenge for established telecom operators and their vendor partners moving forward will be in integrating virtualized platforms with legacy systems. While network function virtualization is seen as an opening up of what have been closed, proprietary network architectures, mobile operators over the past 30 years have collected a vast amount of network equipment that will need to be supported through this evolution process.
Many vendors have indicated that this could be their most challenging short- to midterm issue, with analysts noting that the challenge will be more severe for newer entrants into the telecom space that may not have experience dealing with legacy mobile network equipment and technology. Sure, a new vendor may have the slickest platform to virtualize a data center, but unless that company also knows how to integrate that platform with what a carrier already has deployed through a several-year transition period, operators may be forced to stick with more-established vendors.
“The AT&T’s and Verizon’s have the most to gain and the most to lose with the move toward virtualization,” said Neela Jacques, executive director of OpenDaylight. “They have tons of legacy systems already in place and a lot of capital fixed in making those work. The smaller players in a lot of counties can be more agile, though they may not be able to invest so far ahead. But, once the vendors have the solutions ready, they can roll out their virtualization plans very quickly.”
This could lead to at least a deployment advantage for so-called greenfield deployments from new operators as opposed to brownfield deployments from established players. This advantage could also provide greenfield operators the chance to more quickly recoup their virtualization investments, something that remains a sticky proposition for larger carriers.
“In wireless it has been mobile core as the key for cost savings,” explained Berge Ayvazian, senior analyst and consultant at Wireless 20/20. “If it’s greenfield, you can accelerate the time to deploy and reduce the cost by going to a virtualized platform. But most operators have a huge legacy base and managing the existing core and virtualized core means you have to support both. There are costs associated with that. Any sort of savings will not come until the legacy core can be shut down, which will take years.”
Ayvazian added that in the end, that need to show a return on an investment could be the largest stumbling block for near-term adoption of virtualized platforms. Ayvazian explained that in the current environment where mobile operators are having to constantly increase network investments in order to deal with growing demand, “the only path to profit is to reduce cost through deploying various solutions using virtualized platforms. The path to that ROI is cost reduction.”
“There has not been a solid ROI model on implementing NFV products. Even if you take the lowest-hanging fruit in terms of a part of the network to virtualize, it’s hard to show an ROI,” Ayvazian said. “The hardest thing is to show the revenue impact. There is some speed-to-market impact, or the ability for OTT support and rapid deployment of new features. But, that has been promised before. … You have to spend money to save money. ROI is really a 5-year or longer plan.”
Others noted that the cost efficiencies expected from the move toward virtualization could take years to record as pricing models adjust to this new environment. Many forecasts tied to pricing models have assumed that since NFV will rely more heavily on software, which is seen as a one-time cost solution, the overall NFV package should see costs drop by as much as a factor of 10.
However, Dennis Cox, chief product officer at Ixia, said much of the early talk about virtualization being a capital expense saver has now moved toward savings on the operating expense side of the ledger. This is due to vendors shifting previous practices of muddying the true cost to develop proprietary software into the price of a proprietary software/hardware package. With vendors now having to make their money off of software, they will be more inclined to shift the full cost of that software development to their customers.
“For the bigger vendors it could be interesting as they are used to relying on their own proprietary hardware,” Cox said. “They are comfortable with providing the whole architecture, but that will not be the case with NFV. … The financial model and revenue growth will differ. All of a sudden you are not selling hardware and are now only selling software, which could hit the bottom line. It does not necessarily mean they are in a weaker position. It’s just that they will have to price out their software at full value.”
Bored? Why not follow me on Twitter
Photo copyright: / 123RF Stock Photo
