Disrupting Telco Business Through SDN / NFV

During the last years, the Information, Communication and Technology hyper sector has been characterized by continuous innovation and transformation in the way communication takes place between peers and who and how value and services are provided to end users. On the road to innovation and sector transformation, some technologies have been adopted to achieve higher efficiency in service provision or to add new services to the ICT ecosystem, but only a few of them have been able to disrupt the ICT sector itself. We believe that Software Defined Networks (SDN) and Network Function Virtualization (NFV) technologies belong to this selected group of technologies with great transformative potential. Let us explain why.

During the last years, Information, Communication and Technology hyper sector has been characterized by continuous innovation and transformation on the way communication takes place between peers and who and how value and services are provided to end users. From voice digitalization, Internet Protocol, WWW or GSM, all the way to optical switching, LTE or FTTx technologies, the myriad of Internet services and apps developed have transformed not only ICT sector value chain but have also completely changed the society, social behavior, business operations and models and how citizens, enterprises and institutions interact.

On the road to innovation and sector transformation, some technologies have been adopted to achieve higher efficiency in service provision, like optical WDM and switching, or to add new services to the ICT ecosystem. A few of them have been able to disrupt the ICT sector itself, but some of these technologies have gone one step further, disrupting entire sectors of the economy by transforming the cornerstone over which final services are provisioned to end-users and enabling ICT and other sectors of the economy to address and solve more efficiently the global communication necessities.

For instance, IP and Internet related technologies decoupled communication service provisioning from the network and enhanced the delivery of added value services by third party companies over carrier services provisioned by network operators. This has resulted in a complete redesign of the traditional telecommunications sector value chain as it was conceived in the mid-90s.

We believe that Software Defined Networks (SDN) and Network Function Virtualization (NFV) technologies belong to this selected group of technologies with great transformative potential. Let us explain why.

SDN and NFV ecosystem

SDN and NFV emerge as a new network architecture paradigm, combining different technological capabilities applied to network functions, network design, service platforms & data centers. Network automation, control and data plane separation, cloud computing, virtualization, and open source pave the way for a future of agile, flexible, scalable, and efficient networks.

In 2011, Open Networking Foundation (ONF) was born as a non-profit organization by some of the most representative worldwide ICT companies, including Google, Facebook or Microsoft. Over the last years it has rapidly grown, currently reaching over 100 members. The purpose of ONF is accelerating the development and adoption of open SDN.

As of NFV, it was not until 2012 when ETSI NFV ISG (Industry Specification Group) was launched by telecommunication operators. This group is in charge of achieving a consensus for the technical characteristics of NFV whilst guaranteeing its appliance to business use cases, however, its duty does not involve setting the standard for NFV but it is limited to only publishing recommendations built on the consensus reached.

The previous associations and others have converged into the SDN and NFV ecosystem presented in the following figure.



Impact on network operation and infrastructure

The exponential growth in traffic demand and the increasing competitive pressure to lower prices have resulted in diminishing profits for telco operators, as revenues fall and OPEX increase. New technological approaches such as SDN and NFV focus on delivering business agility while lowering capital and operational costs, which is a perfect deal for CSPs and a first driver for technology adoption.

Current hardware approaches forces businesses to acquire standalone appliances per feature, resulting in costly, inflexible and slow solutions which end up having high O&M OPEX Decoupling hardware and software network functions through NFV enables the provision of telco network services through COTS (Commodity Off The Shelf), standard box remotely configured and controlled by a central controller which executes network applications on demand. Standard open SDN controllers will lead to a new scenario were hardware will be totally compatible between different providers ending with vendor-locking issues. This will also lead to a reduction in the number of devices; one server will be able to hold a series of network application, whilst being simpler equipment, thus having associated a much lower CAPEX.

The ETSI has defined different use cases for NFV covering the total network architecture, from the access network to the service platforms. The following figure is obtained from the analysis of these use cases, measuring the complexity and transformational impact of each of them for CSPs. The size of the bubble is the opportunity in terms of efficiency improvement.


Use Case VS Transformational impact, complexity and opportunity

Networks have turned into a complex cloud of overlapped physical and logical networks, translating this complexity to the operation support systems and processes, which usually have to tackle with incompatible network interfaces from different vendors. Trend towards simplification is a must for operators. For example, in the deployment of LTE, 4G has resulted in another layer to add to the 2G and 3G radio access networks, with additional QoS and site management requirements. SDN technology, through standard protocols and APIs, will allow the development of new simplified business and operation support systems solutions for network management, via full remote control, dynamic troubleshooting, central orchestration and equipment auto configuration.

A SDN approach provides end to end visibility to the CSP of its network whilst increasing flexibility and easing its management and control and introducing tools to allow more interaction between the network, the end-user and/or OTT companies.

SDN and NFV create a new landscape for future network architectures not only from a support system point of view, but will also impact the network architecture, backhaul, backbone and service centers will converge to unique network where different architectures protocols and vendors will coexist. Communication nodes will consist of network cloud servers dynamically executing on demand applications to meet real time client requirements, all managed by a central controller, along with some basic network devices. By decoupling control and data planes, more network intelligence will shift to the “cloud”, breaking down barriers between network segments and evolving to a worldwide web of interconnected datacenters.


Evolution towards a network of interconnected networks & data centers

Squaring the puzzle

The value chain of the Internet has evolved towards software ecosystems where a central solution sets the tools and conditions for third parties develop applications to contribute and enrich added value of the initial development. The success of this model stands on the principle that a value of a certain platform grows with the number of agents working for it. The broadness of vision and scalability is beyond the scope of a single company working with a closed proprietary platform. On the B2C market, Apple released its app store in 2008 with a SDK to allow users to develop its own applications for the iOS ecosystem. As of June 2014, Apple reported to have 9 million registered developers adding value to its platform. However this model has also been highly successful in the B2B market, SAP business model consists on charging a one-time perpetual license or subscriptions, in cloud services, to use their software. A number of partners including software suppliers, system integrators and third-party consultants then add value to this software via parameterization, design of specific characteristics or development of external applications working over the SAP software. This has provided an enormous scalability to SAP, with over 10.000 partners developing solutions to extend the value initially provided by SAP.

SDN and NFV have opened the door for these business models in the network service provision, by decoupling data and control planes, until now both provisioned by network integrated hardware, and adding new layers for further development. SDN/NFV separates network infrastructure (nodes, links, COTS hardware, standardized API implementations) and allows third party control and operation of their own networks through application software running over the top of network cloud infrastructure. Network infrastructure providers (NIP) may be different to network service providers (NSP).

Future NSP business models will be more software-like and less utility-like, with the substantial differences shown in the following figure. 


Utility and software market characteristics

The new approach has better conditions to fulfill the necessities of a digital society that demands agile and dynamic solutions on demand such as full mobility BYOD or, more broadly speaking, seamless personal connectivity.

New commercial models which have succeeded in the internet ecosystem will then be feasible for connectivity services and network service provision; Freemium broadband subscriptions with real time QoS on demand or trial periods will be possible thanks to the reduction of ad hoc hardware.

The new software framework enhances innovation and puts pressure on APIs definition and standardization. ETSI defines wholesale services, such as Virtual Network Features as a Service (henceforth VNFaaS, also known as Network as a Service or NaaS), to be provided by both NIPs and NSPs. NSP will use wholesale services to provide B2B network services adapted to ISPs and final client requirements.

A hypothetical future scenario could present clients perceiving only connectivity infrastructure from the NIPs as NSPs absorb the network management and service provision, as well as broadband and connectivity telecommunication services commercialization and client support. OTT companies and international NSP will be in condition to provide worldwide network services over local NIPs.  

Building future value for end-users

Many technologies have improved the efficiency, connectivity or performance of networks in recent years. With the arrival of virtualization the improvements have focused on agility and automation of the network, thus improving user experience.

One of the limitations of traditional network architectures is that applications running on L7 of the OSI model do not have visibility over the resources available on the network layer; therefore, resource provisioning is not efficient. Through SDN, developers could include software on the upper levels of the OSI (L7 / L4) to have control over the network on the lower layers (L2 / L3), thus generating added value.

Virtualization technology opens a door towards new business and residential business opportunities (B2B and B2C), where the main features lay on the idea of providing further dynamism and adaptability to the final clients.

As the ICT sector becomes increasingly cross industry, the future growth of CSP will depend on how much of the value delivered to other industries they are able to grasp. As a result, we expect the B2B segment to be a future growth engine for the sector. There are operators currently integrating networking in enterprise clouds, allowing more flexible and dynamic business models. VPNs on demand and flexible Bandwidth on Demand (BoD), will create value for B2B customers. However, future services will enable certain clients to hold their own network, adapted to their specific needs (e.g. network optimized for content delivery), using wholesale IaaS or NaaS. In general, B2B segment will continue to require specific and customer tailored complex solutions, with the difference that NSPs will build over NIPs using open APIs a variety of services to help solve challenges that other sectors of the economy are facing.

End customers and clients connected to the network are the most precious assets for CSP. Value will be generated with further customization and context enrichment by delivering flexible network capabilities such as Bandwidth on Demand, premium connectivity, personalized and relevant content, functions and experiences, or ensuring privacy and security of the personal data in a cloud communication environment.

Universal identity has the potential to be a breakthrough. Using OpenFlow (OF) enabled switches and Access Point (APs) to recognize user to provide a unique access policy and performance with independence of the access network or the device used. Together with geolocation capabilities and usage trends, it may be useful to provide Big Data behavioral knowledge through standard interface APIs.

The challenge for ISPs will be to take advantage and increase their value in the chain. This will only be possible by building and capturing value across other industries through B2B services, based on their customer base. In a future extreme scenario, customer base would enjoy free basic connection, while B2C would rely on value added services provided by NSPs over NIPs infrastructure.


Scenarios for relationships between stakeholders

As a consequence, current telco operators must position themselves as NSPs, bundling services with added value and connectivity, therefore, reinforcing their position in the future value chain. Enriched added value services will be provided using at least:

·         Consumer Big Data to be processed and commercially exploited

·         Privacy and security as future monetization assets

·         QoS and flexible on-demand connectivity

·         Definition and standardization of northbound API, in order to take advantage of the opportunities it poses for NIPs to provide additional value to NSPs

Are we prepared for Software-Defined Regulation?

Regarding regulation, the current approach assumes that network control and network switching and infrastructure are tied. Ex ante final service regulation of NSPs can be very challenging in a scenario where both components are decoupled. Moreover, as telco services shift towards utility, operators need to search for new sources of income sustained over dynamic QoS and new services to remain profitable. Net neutrality remains as an unaddressed issue and introduces uncertainty in the sector. Net neutrality interpretation will turn increasingly critical as new possibilities for QoS management arise. QoS control, privacy and data protection will have to be revisited.

If networks service provision goes “soft” and global towards an increasing utility perception, totally new regulatory strategies have to be considered, were wholesale agreements would be reached on a totally different basis. Ensuring equivalence of input to APIs may be an issue and regulators may have to impose measures in this direction, always seeking proportionality and non-discrimination between agents of the complete value chain, treating equally global Internet companies, ISP, NIP and NSP.

Local regulation may be used to address local infrastructure issues, whereas network service provision, like Internet services will require worldwide regulation and Governance

Challenges for network equipment providers

For operators, SDN and NFV result in a significant reduction in costs and management complexity whilst increasing flexibility, but, what about network equipment providers?

Currently, network equipment vendors hold a strong position due to an oligopoly market structure walled gardens at network management and operation systems, and barriers of entry derived from the high cost and complexity of changing equipment provider. Moving towards COTS hardware and standardization of network OSS interfaces is a U turn for their business model. Their new challenge is leveraging their current expertise through software developments in the new open software ecosystem. Their value is no longer the integrated physical equipment, but the software being executed by a common server. This new market presents much lower entry barriers for new competitors to develop network solutions, and will for sure foster the development of a new network application ecosystem.


Decoupling software and hardware

Opportunities will come, like in the case of CSP, from the ever-increasing connectivity and traffic. Different platforms and networks adapted and optimized for different uses (content delivery, real time video gaming or smart second plane sensor metering), ultra-high density of connected devices and sensors and a new complex network orchestration which will be necessary in a multi-connected world.


SDN / NFV technologies will not only increase efficiency in network CAPEX, operation, maintenance, but will transform the ICT sector and value chain by decoupling network switching and infrastructure from network service provision, whilst allowing global, flexible network services adapted and real-time optimized to the customer needs. SDN / NFV will transform both CSP network architecture and the way telcos operate their networks, in the same way that IP and the Internet transformed the sector twenty years ago.

If the Internet and IP technologies introduced over-the-top service provisioning, SDN / NFV will finally shift network processing, analysis and management to the cloud, and thus enable global network service provisioning over multi local SDN / NFV infrastructures. A change of this nature has the potential to rebalance the value chain, changing the field play for all stakeholders, which will require a thorough revision of the current regulatory framework.

Peter F. Drucker “If you want something new, you have to stop doing something old”


Fernando Huerta Aguirre
Partner in charge of Deloitte's Telecommunications industry group in Spain
+34 914 432 540

Santiago Andrés Azcoitia
Senior Manager of Deloitte's Telecommunications industry group in Spain
+34 914 432 676

Carlos Sánchez Marcos
Senior Consultant of Deloitte's Telecommunications industry group in Spain
+34 911577951

David Martín Lambás
Consultant of Deloitte's Telecommunications industry group in Spain
+34 911577564 

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