As large service providers like AT&T (NYSE: T) and Verizon (NYSE: VZ) move forward with their virtualization plans to simplify service delivery and activation, IHS Markit forecasts that the NFV market will scale from $2.7 billion today to $15.5 billion by 2020.
What the movement to NFV and SDN reflects is the telecom industry's migration away from traditional hard-wired hardware platforms to software.
Michael Howard, senior research director of carrier networks for IHS Markit, said that "NFV software will comprise 80 percent of the $15.5 billion total in 2020 -- or around $4 out of every $5 spent on NFV."
By the year 2020, only 11 percent of vendor's NFV revenue will be related to new software and services. The majority of NFV revenue -- or 16 percent -- will consist of network functions virtualization infrastructure (NFVI), including servers, storage and switches. These platforms will eventually replace purpose-built network hardware such as routers, deep packet inspection (DPI) products and firewalls.
IHS said that the remaining 73 percent will originate from existing market segments, primarily virtual network functions (VNFs) -- where the value of NFV lies for service providers.
"We expect strong growth in NFV markets in 2020 and beyond, driven by service providers' desire for service agility and operational efficiency," Howard said.
Take AT&T, which just launched its NFV on demand service in 76 countries and territories. Multinational companies will gain a simplified process to purchase and add new network functions, reducing activation times from to a few minutes.
"That whole software centric network enables us to roll out services more quickly and enables to reconfigure services more dynamically," said Roman Pacewicz, SVP of global strategy for AT&T, in an interview with FierceTelecom. "Because AT&T Network Functions on Demand is enabled by a software-centric architecture, we are able to roll it out in 76 countries at the same time."
Out of the largest U.S.-based telcos, AT&T is has been clearly the most aggressive. AT&T said it is on track to virtualize 30 percent of its network functions with the ultimate goal of on its way to virtualizing 75 percent of its network by 2020.
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