Technology contract awards between vendors and communications service providers (CSPs) fell 23% in 2016, to 773 announcements. This reduced contract activity is consistent with Ovum's 2017 forecast for CSP capex, which calls for a 6% drop, to $316bn. Contracts involving other vertical markets picked up last year, however, with the strongest growth in commercial, government, research and education (R&E), and financial markets. Across all verticals (including CSP), total announced contracts grew 9% to 1,486 in 2016. By technology area, the biggest growth in 2016 came from cloud software, switching and routing (S&R), security software, 5G, and BSS software. In 2017, vertical markets beyond CSP will continue to build bigger and more complex networks of their own, raising opportunities for vendors facing a quieter telco market.
Need for networks rising in enterprise verticals
Companies of all types and sizes have needs for communications infrastructure, from SMEs spending on small-scale IP and collaboration solutions, to large web providers investing in subsea cable consortiums.
Ovum's Telecoms Vendor Contracts Analytics (TVCA) database has traditionally focused on CSPs as the buyer, but that has changed over time for two reasons. Firstly, in the last four years a much broader set of vendors has been monitored. Secondly, and more importantly, enterprise communications needs are evolving, becoming more sophisticated – many more of them have "carrier-class" (and scale) requirements. Companies such as Avaya, Brocade, Cisco, HP, HPE, IBM, and Oracle are among those with an edge for large enterprise network projects, and they are continuing to actively announce big wins. Many more vendors are going after the business, however. That includes Huawei, Ericsson, and Nokia, the biggest three suppliers to telcos, but also a whole range of smaller vendors. This is showing up in our TVCA results.
For full-year 2016, vendor contract announcements totaled 1,486, up 9% from 2015. That growth is despite a 23% drop in the biggest segment, CSP, which accounted for about half of all deals last year. Most of last year's growth came from commercial enterprises (e.g. stadiums, hotels, retailers), and the government and R&E vertical markets. However, internet content providers (ICPs) also saw growth in 2016 with 34 contract awards (up from 13 in 2015). That was due partly to ICPs spending more on capex, including big telco-like projects such as the Facebook/Microsoft-sponsored MAREA cable across the Atlantic. Also, more vendors are developing solutions that actually fit ICP needs, curtailing some of the need for internal development. A couple of examples from last year include: Microsoft picking Nectar and Sonus Networks to deliver a SIP network diagnostic solution for Skype; and Chinese search engine Sogou deploying Coriant's 7100 optical platform for data center interconnect.
S&R and software activity was strongest in 2016
In 2016, just three of TVCA's 42 product types captured nearly 40% of all contract awards: OSS Software, BSS Software, and S&R. Software's strength came from outside telco markets in other verticals. S&R, however, saw good contract growth across customer types including telcos. The smaller product areas of 5G, cloud software, and security solutions grew the fastest. Within the telco segment, for instance, security doubled its share of total contracts from 2% in 2015 to 4% in 2016. M2M/IoT is also attracting more CSP attention, with projects announced in 2H16 from AT&T, NTT DoCoMo, Telia, Verizon, Vodafone, VimpelCom, and China's three big CSPs.
SDN/NFV announcements fell in 2016, but CSP interest has not stalled
Another promising area, SDN/NFV, actually saw contract announcements decline 15% in 2016, in the CSP vertical. This does, however, illustrate that you cannot look only at public announcements in assessing technologies, for many reasons. A major factor is the deployment cycle of new technologies – there is a certain "digestion" process that takes place after initial trials start, but before fully standardized and competitively available products can be deployed.
Furthermore, CSP decisions around SDN and NFV tie into their views on open source. Facebook's Open Compute Project, its newer Telecom Infra Project (TIP), and other industry efforts are enticing CSPs to consider cutting out the vendor "middle man" and pushing faster on open source. Recently, for example, European CSP Telia deployed Facebook's Voyager optical switch on a >1,000km fiber backbone route. This is one of many open source projects that CSPs are watching. More choice is great, but doesn't always produce the fastest decisions.
Telecoms Vendor Contract Database: March 2017, TE0006-001360 (March 2017)
ICP Network Strategies and Their Impact on the Market, TE0006-001321 (January 2017)
Communications Provider Revenues and Capex Forecast: 2016–21, TE0006-001300 (November 2016)
Open Source and Technology Development for NFV, TE0006-001255 (August 2016)
"Microsoft and Facebook to build the Marea subsea cable," TE0017-000068 (July 2016)
"Open Compute Project gets down to business," TE003-000600 (February 2014)
Matt Walker, Practice Leader, Companies and Markets