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Telecom Network Cloud Infrastructure Upside

The 5G Core (5GC) mobile network infrastructure is the first to operate solely in the software layer. A new study finds that cloud-native Evolved Packet Core (EPC) functions and 5GC are key drivers for new telecom value creation and growth.

With the ongoing adoption of cloud-based packet core networks, it is the first time the telecom industry has relied on the core network to introduce something above and beyond enhanced mobile broadband (eMBB).

According to the latest worldwide market study by ABI Research, cloud packet core revenue will grow from $11 billion in 2022 to reach $16 billion in 2027.

Telecom Network Cloud Market Development

In a modular and increasingly disaggregated ecosystem characterized by vertical and horizontal openness, technology choices for software, hardware, and services that underpin packet core buildouts are fundamental for CSPs to expand existing MBB business and explore new growth opportunities.

ABI Research now forecasts that, for MBB, core network application software is expected to grow from $4.8 billion in 2022 to reach $6.6 billion in 2027 -- at a Compound Annual Growth Rate (CAGR) of 6 percent.

"Today, much of the traffic going through the packet core is handled via physical network elements. With a growing 5G subscriber base and ongoing adoption of 5GC, the expectation is that 4G traffic shifts to 5G networks," said Don Alusha, senior analyst at ABI Research.

That, in addition to a rapid proliferation of software-defined advances, means that today's classic model for packet core equipment sales will likely take a different structure tomorrow.

What drives that point home is that hardware sales for packet core networks are expected to reach $3.9 billion in 2027, not a significant growth from the current market valued at $3.5 billion in 2022.

With an ongoing cloudification of packet core networks, the commercial imperative for telecom vendors is stark: depart from a finite supply of integrated equipment to models based on software where the supply is essentially infinite.

Furthermore, according to the ABI assessment, new value stands to be created in new services. 

ABI Research also forecasts that packet core services are expected to grow from $3 billion in 2022 to reach $5.2 billion in 2027 at a CAGR of 12 percent.

"There is a growing market for services to help CSPs manage 5G rollouts driven by hardware and software separation, multi-vendor stacks, and expanded business scope drive. In that order. With 3G and 4G, packet core services revolve around one supplier providing their own software and hardware in an integrated fashion to ensure feature alignment, performance, and lifecycle management," says Alusha. 

But going forward, with cloud packet core, the industry structure stands to be horizontally stratified. So, the supplier of the future will need to aid CSPs in all aspects of technology -- from defining network architecture to managing workloads to building applications potentially coming from diverse suppliers.

The rules of buying and selling the packet core are changing. How suppliers build products, drive revenue, the services they offer, and what they do to succeed in an increasingly cloud-based ecosystem are all on the table.

For the next few years, the likes of Cisco, HPE, and Juniper must execute a 'do both' model. They need to run the current product playbook and layer in a new software-based selling strategy in line with new economic realities.

Outlook for Telecom Network Cloud Apps Growth

Ultimately, telecom vendor suppliers must help, not sell. Helping will sell, but selling will not help.

Helping requires strong system integration and professional services capabilities. In addition, the market is becoming more complex and riskier. Success will go to the fittest - not necessarily the biggest -because bigness is weakened by commoditization.

"Innovation in the process -- how things get done internally -- will be as important as innovation in packet core products that vendors sell," Alusha concludes.

That said, I anticipate the global market will continue to evolve as more telecom service providers explore the capabilities and benefits of this network infrastructure. For network software vendors, the ability to identify the opportunity in core application software and professional services -- as it relates to Mobile Broadband -- is going to become a key growth driver.

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