Network functions virtualization (NFV) promises to revolutionize telecommunications networks by improving service agility, simplifying network operations, and reducing expenses. One of the biggest challenges for global cloud providers and telecommunications service providers is to quantify the return on investment (ROI) and business benefits of NFV, given the changes and investment required for their network operations.
It’s worth taking a more detailed look at how service providers make this determination of the NFV business benefits – and the full list of factors involved. Below is an outline of the process and what aspects are being examined.
Justifying the ROI for NFV
NFV ROI and business benefits can be justified by a reduction in expenditures (both capex and opex) and by new revenue generated by NFV-related services.
Key questions include:
- What are the specific revenue-generating services enabled by NFV?
- Which network elements are good candidates for virtualization?
- How does NFV reduce capital and operating costs?
Service providers are in the early stages of NFV implementation (trials, proofs of concept) in parts of their networks. Some elements of the network (e.g., new builds) are ripe for NFV transformation – while others clearly are not.
Capex Savings for NFV
Service providers spend tremendous amounts of capital on equipment to build and upgrade their networks. For example, AT&T’s capex was approximately $18 billion in 2015. Only a portion of this was spent on network/telecom equipment that can be affected by NFV/SDN technology.
Over time, more and more of the network infrastructure will come into scope (due to improved NFV/SDN hardware and software). In addition, the cost and business benefits for NFV implementation are expected to increase over time due the following factors:
- Improved maturity and experience from NFV/SDN transformation
- Continued increase in processing and I/O capabilities of commercial (x86) server and OS software
- Improved capabilities and performance of NFV applications
- Improved efficiency of capacity utilization in a virtual environment – reduction in capacity growth, better capacity planning
- Ability to consolidate (reduce the number of) hardware boxes
Doyle Research estimates that NFV can provide capex savings in the range of 20 to 35 percent of certain network elements.
Quantifying Opex Savings
Opex is also a huge expense for all telecom operators. Relevant operational expense (as it relates to network/IT operations and maintenance costs) is approximately 20 percent of large service provider revenues. Leading system integrators estimate that operators can save 20 to 30 percent on opex via telecom transformation driven by NFV.
Potential opex savings come from a number of areas depending on the type of service transformed by NFV/SDN, including:
- Elimination of a significant percent of truck rolls for business (and possibility consumer) customers
- More efficient network planning and design
- Ability to turn-up services and fix service problems more rapidly
- Savings from reduced power consumption and facilities costs
Significant opex savings are dependent on a given operator’s ability to reduce the number of network operations staff. Bringing down operating costs is a key goal for the operator’s implementation of NFV/SDN technology. For example, Vodafone plans to leverage NFV/SDN to unify its country-specific VPN offerings with expected savings from increased automation. However, it is not clear that NFV/SDN will result in immediate opex savings, due to retraining costs and the need to operate both traditional and virtual network elements.
New Services Revenue Opportunities
The largest business benefits of NFV will be driven by new services revenues. The overall communications services market exceeds $2 trillion. The opportunities for new business and consumer services (both wireline and wireless) for leading CSPs are in the tens of billions of dollars per year. The challenge is to identify and size specific services that are enabled by NFV – and to estimate what percentage of these services opportunities are realistically in scope for the operator.
The new revenue drivers include:
- Faster time to revenue
- Ability to enter new market opportunities (e.g., Internet of Things)
- Upselling existing customers (e.g., SD-WAN, vCPE, security)
For example, several service providers are deploying virtual evolved packet core technology to enable them to better address the IoT opportunity. Other service providers are deploying SD-WAN technologies to improve their hybrid WAN offerings to business customers.
Recommendations for Service Providers
Network functions virtualization is a critical part of service provider plans to deliver new applications and reduce costs. However, the customers will rely on their existing networks to deliver reliable services. Most operators will adopt NFV in a phased approach and must plan carefully to transition from legacy architectures to the virtual NFV world.
When evaluating the ROI of NFV implementations, network operators should consider the following questions:
- What new services revenues will be enabled by NFV implementation?
- In which specific parts of the telecom infrastructure will NFV technologies be deployed within the next five years?
- What magnitude of capex savings can be expected?
- In what areas will NFV technologies reduce opex? What cost reduction percentage can be expected in each area?
- What training costs are likely to be incurred to implement NFV?
- What are the challenges of operating legacy and virtual network elements in tandem?