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Summary

Communications providers' announced technology contract activity remained strong in 2Q16, even as spending budgets remain tight. Contracts across all provider types grew 19% YoY to 1,422 in the 3Q15–2Q16 period. Telco contracts have been weak for three straight quarters, but that's been offset by strength in the R&E, government, and commercial verticals. By segment, contract activity has been strongest in network software, IP infrastructure, cloud, 5G, SDN/NFV, security, and M2M/IoT, all areas where technology and customer needs are changing rapidly.

Telecom market landscape shifts entice vendor bragging

Announced telecom vendor contracts across all customer types totaled 362 in 2Q16 on a single-quarter basis, up 17% YoY. CSPs' (communications service providers') announced contracts have been flat or down YoY for several quarters, so this growth came entirely from non-CSP (i.e. non-telco) buyers. For instance, contracts from commercial users – ranging from stadiums to factories to corporate headquarters – surged to 44 in 2Q16, from 13 in 2Q15. The R&E, government, and media verticals were also active.

On a 12-month basis, CSPs accounted for 942 contracts in 2Q16, up 8% YoY. That modest result is broadly consistent with capex trends: CSP capex growth for 2Q16 will be around 1–2% based on preliminary figures.

By contrast, the non-CSP verticals totaled 480 in 3Q15–2Q16, up a vigorous 49% YoY. Commercial, government, and R&E segments performed strongest. Some recent (2Q16) contracts illustrate the diversity of non-CSP applications:

  • Commercial: Ciena is constructing a new Wi-Fi over Ethernet/fiber network for the Dover International Speedway, using the vendor's 3900 family of switches.

  • Government: Ericsson is launching a national interoperability switch based on its M-Commerce Interconnect (mobile payments) solution, for Rwanda's Ministry of Finance and Economic Planning.

  • R&E: Columbia University's Teachers College is buying a range of HPE and Aruba wired and wireless solutions to build a "21st century" campus and research network.

Within the CSP customer segment, several technology areas did see strong pickups in 2Q16. IP infrastructure, network management software/OSS, and cloud (including data center equipment) grew the most among large segments in 2Q16. But 5G experienced the biggest percentage growth, leaping to 32 contracts in this latest 12 months, from 7 the year before. Most of this activity is very early, though, focused on trials or joint collaborative R&D. SDN/NFV has a more near-term impact, and its contract flow has similarly spiked. In the 12 months ended June 2016, SDN/NFV contracts totaled 62, from 43 the year prior; first-half 2016 announcements came from several of the globe's largest CSPs, including BT, China Mobile, NTT, Softbank, Telefonica, Telstra, and Verizon.

Juniper, Gemalto, Infinera, Huawei, ZTE, and Ericsson all making strides

Ovum's telecom vendor contracts (TVCA) database does not measure market share, in revenue or shipment terms. Rather, it tracks public announcements across a wide range of vertical markets, for hundreds of vendors. The largest contracts do typically come with formal announcements, in most countries – but certainly not all. Contract announcements do, however, come with press coverage and visibility in the market segment/region involved. As such, TVCA gets close to tracking mindshare, very roughly.

With that caveat: vendors accounting for the most announced contracts in the last 12 months are Ericsson, Nokia (including Alcatel-Lucent), Huawei, NEC, Cisco, Gemalto, Infinera, Brocade, ZTE, and Ciena. Ericsson, Nokia (with Alcatel-Lucent), and Huawei recorded 112, 98, and 82 contracts, respectively, and are all far ahead of the rest of the pack. The biggest growth (i.e. increase in contract flow) came from Juniper, Gemalto, and Infinera, but market leaders Ericsson and Huawei also saw big jumps in contract totals, as did ZTE. One reason: as CSP capex has leveled, big vendors are advertising their capabilities in other verticals. Examples, from 2Q16 announcements, include: Ericsson provided video-processing and distribution products to NBC for the latest Olympic Games; and Huawei built a data center interconnect network supporting transport SDN for Baidu, a Chinese Internet content provider (ICP).

We expect vendors traditionally focused on telcos to continue their enterprise push. Non-CSP customers will continue to have more sophisticated network requirements. Serving the smaller verticals isn't easy, though, and will be a challenge for many of the smaller vendors without sound partnerships or channels.

Appendix

Further reading

Telecoms Vendor Contract Database: June 2016, TE0006-001240 (June 2016)

"ICPs report strong 2Q16; full-year capex approaching 7% of revenues," TE0006-001269 (August 2016)

"With its $4.8bn deal for Yahoo, Verizon is gunning for Google and Facebook," ME0002-000689 (July 2016)

Microsoft and Facebook to build the Marea subsea cable, TE0017-000068 (June 2016)

Communications Provider Revenue & Capex Highlights: 1Q16, TE0006-001253 (June 2016)

Communications Provider Revenue & Capex Forecast: 2015–20, TE0006-001167 (December 2015)

Author

Matt Walker, Principal Analyst, Intelligent Networks

matt.walker@ovum.com

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