Broadband Infrastructure Market Assessment

Market Definition: IP services platforms complement carriers' existing access and backbone equipment and are capable of extending critical Layer 2 (L2) and Layer 3 (L3) functions such as broadband aggregation (such as broadband remote access server [BRAS]), IP routing, and ATM switching as well as Ethernet switching and interworking functions to the carrier's network edge. For instance, the DSL Forum's TR-059 service architecture advocates flexibly combining such L2/L3 networking functions at the carrier's network edge for DSL aggregation applications. In addition to DSL aggregation, IP service platforms can aggregate a wide range of carrier access and connectivity services such as wireless access (for example WLAN, FBWA, mobile), cable modems, fiber, and traditional dial-up. IP services platforms typically deliver scaling, capacity, session processing, policy management, and performance metrics that improve upon IP edge routing technologies, carrier ATM switches, and first generation broadband aggregation and subscriber management technologies. In addition to supporting L2/L3 functions, IP service platforms can also act as the policy, provisioning, and management platform for consumer and business services such as IP VPNs, video, multicasting, network-based security, IP QoS services (for example, DiffServ, classification, and behavior), multicasting, tiered services (for example, time-based, volume-based, bandwidth on demand, service levels), MPLS applications (e.g., traffic engineering), and traffic shaping (for example, P2P traffic control).

Recent advances achieved in IP service platform design are of strategic importance to carriers of all types for realizing the delivery, scaling, and support of value-added, revenue-generating broadband services, including IP services. As service providers increasingly shift their focus from selling best-effort services such as Internet access or traditional services such as TDM-based voice services to selling customized broadband services, the IP services platforms segment of the overall carrier edge switch and router market will continue to grow in importance, innovation, and market share. A new network model is poised to dominate next-generation service provider infrastructures, with the network edge as the enabler of IP-based, network-hosted, customized services, powered by high-density, highly intelligent IP services platforms.

Market Review:

  • Service Providers are in a "Survival of the Fittest" Contest, Need Key Differentiators: Faced with burgeoning demand, tight capital expenditure and operational expenditure budgets, and the increasing commoditization of basic services, service providers of all kinds deploy IP service platforms to develop value propositions and service offerings to ensure not just profitability, but long-term survival. Traditional voice providers are looking to increase slow growing revenue streams via IP services, while data-oriented providers need capabilities that allow them to increase their current razor-thin margins via value-added services.
  • Need for Policy-based Value-added IP Services Drives Need for Service Delivery Platforms: The carrier WAN switching market will benefit from the current drive toward convergence of the IP services market and the hosted applications market. Some enterprise customers are driving the applications market toward networked service platforms to complement, or replace customer premise equipment (CPE) models. Increasingly, businesses are seeking strategic partnerships with service providers capable of delivering value-added IP services, and service providers are looking for products that can support service enhancing capabilities such as Layer 2/Layer 3 migration flexibility, MPLS VPN solutions that include extensive support of MPLS signaling and traffic engineering extensions, wire-speed performance, wholesale virtual routing, IP QoS, IPSec for encrypted VPN applications, scaling optimization, open APIs, and service level management. Through effective use of policy management, services platforms allow providers to cut costs and boost revenue by leveraging existing network assets and bundling services for highest value (for example, combining VPNs with security features such as network-based firewalls).
  • Increasing Consolidation of IP Edge Switch, L2 Switch, and IP Service Switch Technologies: IP edge switch routing technology once designed for basic IP edge transport functions such as T-1 aggregation and ATM WAN switches that were originally designed to support L2 frame relay/ATM aggregation and transport functions now support an expanding array of intelligence features including IP service edge functions. Thus the rationale for deploying purpose-built IP service switches has receded, although some carriers continue to prefer to deploy such service switches. Major telcos deploying DSL services have already shown keen interest in adopting key aspects of the DSL Forum's TR-059 services architecture, which advocates combining IP routing, ATM switching, BRAS, and Ethernet switching functions on common platforms in order to streamline broadband aggregation network implementation with European PTTs leading the adoption curve with U.S. RBOCs expected to follow suit during the course of 2004-5. However, carriers for the present and near-term seem uninterested in "God boxes" from start-ups that could perform a vast array of L2/L3 capabilities, as well as L4- L7 functions on a common platform. Thus the carrier edge will continue to feature a myriad of customer-driven migration and consolidation efforts at the network edge, including the integration of L2 and routing functions on IP service switches, as well as expanding the capabilities of carrier edge platforms in general.
  • Technology Marches On, Demanding Future-proof Solutions: The rapid pace of technological change in IT, the Internet, network security, and telecommunications is predicted to continue and even accelerate further despite temporal macro-economic fluctuations. IP services platforms that are adaptive, flexible, and able to integrate with and support customer applications have appeared, partly to fill this need. Recent technology advances also offer other features crucial for smooth transitions to the next-generation network: supporting integration of legacy and new network operations with back- office business systems, and offering robustness, scalability, and diverse protocol coordination, as well as scaling access and connectivity services as well as custom services.
  • The Broadband Aggregation Market Segment Surged in 2003 and is Poised for More Robust Near-term Growth: The overall broadband aggregation market segment, which includes next-generation IP service platform technology as well as elements of traditional IP edge routing technologies and first-generation broadband aggregation and subscriber management technologies, yielded $505.1 million during CY 2003 in worldwide equipment sales, representing a 126 percent increase over $223.8 million of sales in CY 2002 (according to Synergy Research). The 2004 worldwide broadband aggregation is expected to yield about $648.5 million, representing a 26 percent increase over CY 2003 revenues. It is worth noting that the related IP service switching segment yielded around $87.1 million during CY 2003, although that segment continues to shrink in relation to the broadband aggregation segment, as IP service platforms continue to perform a wider range of broadband aggregation functions in addition to IP service switching functions.
  • IPSec Remains Dominant in Tunneling and Encryption Technology for Remote Access VPNs, Influencing IP Service Platform Architectures: IPSec continues to dominate tunneling and encryption technology for VPNs, including remote access and site-to-site applications. It is worth noting that MPLS and SSL technologies continue to gain acceptance among carriers and in many cases complement IPSec technology. Many carriers have already adopted MPLS for traffic engineering/traffic management functions as well as site-to-site VPN functions with browser-based, client-free SSL technology making steady inroads in the remote access and wireless areas. As a result, IP service edge technology now supports various combinations of IPSec, MPLS, and SSL technology to meet evolving carrier needs.
  • Platforms Must Support Legacy Network Connectivity and New Service Applications: IP service platforms that offer aggregation of Layer 2 services such as transparent frame relay services, frame relay over IP, frame relay over MPLS (including mapping via channelized DS3 access links to the switch), VLAN over MPLS, Broadband Remote Access Server (BRAS) functions, and IPSec termination will meet the enterprise need for retention of extant network base while expanding into new IP services. IP service platforms capable of supporting multiple applications, large- subscriber bases, and real-time transaction processing applications such as online billing and provisioning systems will also drive immediate market growth.

    LI>The Telecommunications Reform Act of 1996 (TRA) Continues to Shape Next-generation Services Development: The 1996 TRA continues to exercise an influence over the delivery of services in the U.S. market such as integrated voice/date services (including VoIP), thus impacting the future IP services market. Incumbent local exchange carriers (ILECs) will continue to seek legal redress for certifying competition within the local loop, allowing them to enter the data services market, which includes packetized voice services. Resolution of legal outcomes could alter the competitive landscape between traditional voice carriers and data service providers, enabling incumbent providers, for example, to ramp up deployment of integrated voice/data services, especially in the residential segment, and thus create additional demand for IP services technology.

Near-Term Market Drivers:

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