Enterprise networking vendors and telecommunication service providers encountered a series of challenges in 2016, as more customers shifted their focus from managing business technology investment to the strategic procurement of products and services related to digital transformation projects.
That's why investments in fiber networks, 5G wireless, NFV and SDN will be critical for telecom service providers to keep pace with market demand over the next five years, as more CIOs integrate next-generation technologies into their IT environments, according to the latest market study by Technology Business Research (TBR).
Enterprise IT Market Development
IT services remained the largest enterprise segment in 3Q16, with combined revenue among benchmark companies rising 9 percent year-to-year to reach $11.7 billion due to growth in demand for Internet of Things (IoT), cloud computing and IT security.
Furthermore, the divestment of Verizon and CenturyLink data centers illustrate that some legacy telecom carriers are no longer attempting to compete directly with the leading global public cloud service providers -- such as Amazon Web Services, Microsoft and IBM.
"Telecom carriers are instead focusing their cloud businesses on establishing and expanding partnerships to build their cloud network connectivity platforms, while leveraging proceeds from data center divestment to accelerate fiber initiatives," said Chris Antlitz, senior analyst at TBR.
That said, NTT, T-Systems and Telefonica are the exceptions to this trend, as these forward-looking companies invest in data centers and portfolio expansion to gain market share locally, against the major global cloud service leaders.
Most enterprise network operators have begun field-testing pre-standards 5G technologies, which will position them to sustain long-term IT services revenue growth and support next-generation IoT solutions when technology standards are established by 2020.
Moreover, enhanced solutions in healthcare -- as well as 3D printing, smart cities and autonomous driving -- have been identified by industry analysts as predominant IoT use cases so far for 5G networks.
Outlook for NFV and SDN Applications
According to the TBR assessment, total strategic data revenue increased 9.8 percent year-to-year in 3Q16 to $6 billion due to rising demand for high-speed broadband, VPN and Ethernet solutions.
All the major enterprise network operators have begun NFV or SDN deployments, which is enabling service providers to launch scalable data services such as SD-WAN and Network-as-a-Service (NaaS).
Telecom network operators need to continue building their NFV and SDN portfolios to remain competitive, as demand will increase when these key services gain traction. Operators are also embracing NFV and SDN to reduce operating expenses and shift capital expense to open platforms.