Carrier network functions virtualization (NFV) is positioned to grow dramatically in the next four years. According to the new IHS Markit NFV biannual tracker, carrier NFV spending will top $37 billion in 2021 and have a compound annual growth rate (CAGR) of 30 percent between 2016 and 2021.

Service providers also are expected to invest heavily in virtual customer premises equipment (vCPE). The study predicts that they will spend $2 billion on hardware and software for enterprise vCPE in 2021 and $293 million for consumer vCPE.

Michael Howard, IHS executive director of research and analysis of carrier networks, noted that the increased investment in vCPE isn’t that surprising. “For all five years that we have been doing this survey the top use case has been vCPE, and the vCPE spending then increases,” Howard said. “That number might be conservative, but we think it’s pretty solid.”

In addition, recent carrier surveys conducted by IHS on SDN and NFV found that 82 percent of respondents indicated that they are deploying or plan to deploy virtual network functions (VNFs) on universal CPE (uCPE) at customer sites (with 97 percent in central offices and 85 percent in data centers).

Howard noted that the big driver for operators to deploy vCPE is that they can deliver managed services to enterprise locations with firewalls, LAN optimization controllers, and VPNs, and do it flexibly by just using software.

The report also found that NFV management and network orchestration (MANO) software revenue is growing dramatically. NFV MANO software revenue totaled $3.5 billion in 2016 and is expected to hit $5.9 billion at the end of this year, IHS said.

Howard noted that about 8 percent of the revenue from NFV will be displaced revenue spent on NFVI server, storage, and switch hardware instead of purpose-built network appliances. The majority of the revenue (49 percent) will be new revenue from software and outsourced services. Meanwhile, the remaining 43 percent of revenue will come from spending on VNF software.

IHS estimates that vendors and systems integrators will see a jump in revenue for outsourced services related to NFV projects, growing to $16.6 billion in 2021 with a CAGR of 23 percent.

Meanwhile, NFV software vendors, which includes NFV MANO and VNFs, will see revenue grow to $15.5 billion in 2021 with a CAGR of 36 percent.

And NFV hardware makers, which includes server, storage, and switches, will see revenue grow from $696 million in 2016 to $3.1 billion in 2021 with a CAGR of 35 percent, the study said.