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Summary

Internet content provider (ICP) capex continues to drive growth in the network infrastructure market. Preliminary results for 2014, with about 85% of the market reporting, suggest that capex for the year grew about 23% to reach $57bn, concentrated regionally in North America. Communications service providers (CSPs) spend six times this figure, but the gap is shrinking.

Data centers are at the core of ICP network investments

Ovum’s most recent forecast of communications provider capex covered three types of providers: CSPs, aka telcos or network operators; carrier-neutral providers (CNPs, specialists in cell towers or multi-tenant data centers), and a diverse mix of companies whose primary business is the “creation, storage, and dissemination of digital information” – the ICPs. This latter segment, which includes powerhouses such as Amazon, Google, and IBM, is driving industry capex growth. In 2014, ICP capex reached approximately $57bn, up 23% YoY and in line with our forecast. ICP revenues grew 11% in 2014, slightly faster than we predicted.

Business models in the ICP segment are diverse. What unifies the group is the companies’ need for a far-reaching network of data centers and related core and sometimes access infrastructure in order to support their customers. And their buildout plans are not slowing. This week, for instance, Apple announced a €1.7bn plan for two new data centers in Europe. This is part of Apple’s projected $13bn in fiscal year 2015 capex, a 32% rise from the 12 months ended September 2014.

ICPs are also having an impact on technology development. Just as web-centric ICPs can deploy and evolve new services faster than CSPs, they also have unique technology needs. Historically many ICPs have developed their own technology platforms, often buying components directly from suppliers in order to build customized systems. Some have pushed open source aggressively; this includes Facebook’s support of the Open Compute Project, to which it recently contributed its “Six Pack” switch, viewed by some as a competitor to Cisco designs. Telecom-focused vendors, which Ovum said were (slowly) becoming an “endangered species” in a report last year, are rising to the challenge, however. Increasingly we see vendors such as Ciena, Alcatel-Lucent/Nuage Networks, Infinera, and BTI designing solutions explicitly focused on the growing ICP segment. We expect to see more signs of this shift at the March 2015 OFC conference in California.

Appendix

Further reading

Internet Content Providers & Carrier-Neutral Providers Revenue & Capex Forecast: 2014‒19, TE0006-000987 (January 2015)

Communications Service Provider (CSP) Revenue & Capex Forecast: 2014‒19, TE0006-000979 (January 2015)

2015 Trends to Watch: Components, TE0017-000025 (December 2014)

Google Fiber's Path to Likely Profitability, TE0017-000023 (December 2014)

Optical Networks Forecast Spreadsheet: 2014–19, TE0006-000982 (December 2014)

Open Source for Telecom Networks, TE0006-000957 (November 2014)

Telecom Vendors (Slowly) Becoming an Endangered Species, TE0006-000923 (August 2014)

2014 Trends to Watch: Data Center Networking Hardware, TE003-000592 (November 2013)

For additional detail on Ovum's data center interconnect analysis see:

Data Center Interconnect: New Revenue Opportunities, TE008-001387 (January 2014)

Global Data Center Interconnect Survey and Outlook

For additional depth on adjacent market factors see:

Telecoms Cloud Monitor 1H14: The Space Race is Back, TE0005-000650 (October 2014)

Author

Matt Walker, Principal Analyst, Intelligent Networks

matt.walker@ovum.com

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