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:

• IP Service Platforms Require Versatility including Flexible Policy Management: The IP services platform market for switches required to flexibly support L2 and L3 services and applications is a swiftly evolving market, whose shape and success is being defined by the offerings of existing top switch/router vendors as well as the proliferation of broadband services on the network service provider horizon. Thus IP service platforms that deliver flexible policy management will prove successful in allowing carriers to dynamically define their service offerings, customer and partner relationships such as content partnerships, as well as support application layer mechanisms while streamlining physical and network layer broadband aggregation architectures. Additionally, the emerging trend toward a converged network architecture as evidenced by the TR-059 service architecture includes IP service platforms that support multiple protocols such as ATM, frame relay, MPLS, and Ethernet/IP as well as interfaces to established management platforms, which is directing the service platform market toward integrated switch architectures with multi-functionality.
• IP Service Platforms Must Interwork with Traditional WAN Technologies such as ATM, TDM, and Frame Relay: Multi-function IP/ATM, IP/frame relay, and SONET/SDH capabilities offer a means to leverage existing network infrastructures to spur enterprises vested in frame relay or ATM technologies to take advantage of new value-added IP services, including managed firewalls, authentication services, and network-based VPNs. In addition, joint vendor partnerships and converging product architectures have influenced the integration of metro Ethernet functions onto IP services platforms such as VLAN tagging and mapping and Gigabit Ethernet/10GigE trunking. In a service provider market that is expanding toward diverse network- layer services and multi-functionality, the need for IP services platforms will remain.
• Small-to-Medium Business Sector Will Continue to Fuel Near-term Demand: Near-term market growth will continue to be driven by the expansion of hosted- application markets in the SMB arena, as well as by the leveraging of existing frame relay network architectures by medium- to large-sized enterprises that want IP-based networking safeguarded by security services such as IPSec and SSL remote access, packet authentication, DoS attack protection, and cryptographic key management services necessary for the expected high-revenue generation of e- commerce applications.
• Broadband Residential Services Will Drive IP Service Platform Deployments: IP service platforms that offer aggregation of broadband connections such as DSL and cable modems and mapping to core platforms (such as optical switches and core routers) will meet the broadband residential need for retention of extant network base and expansion into new IP services. Telcos and cable operators continue to aggressively deploy bundled packages that combine voice, video (for example, video-on-demand, video conferencing, broadcast/streaming video, personal video recorders), wireless, and high-speed data applications in various combinations to increase customer retention as well as counter competitive offerings. IP service platforms capable of supporting multiple applications, large- subscriber bases including scaling of sessions (such as at least 50,000 session for metro environments), unified authentication mechanisms, dynamic IP addressing (for example Dynamic Host Control Protocol), and real-time transaction processing applications such as online billing and provisioning systems will also drive immediate market growth.
• Broadband Business Services Such as VPN and Security Key: Security concerns will continue to influence how IP services, intranet, extranet, remote access VPNs, and hosted applications are adopted at the small, medium, and large enterprise levels. The success of cable operators and telcos in deploying residential and business broadband services will also influence near-term stability of the IP services platform segment. It is likely that market dynamics will shift and fluctuations occur as voice/data convergence efforts continue to evolve, and the need for multi-service switches capable of supporting voice, video, and data over multiple transport platforms (for example IP/MPLS, frame relay, and ATM) escalates.

Long-Term Market Drivers:

• Content Delivery, Wireless Services, and Evolution Toward All-optical Networks Will Drive Long-term Growth: Long-term market growth will be influenced by advances in areas such as content, wireless, and optical systems integration with IP service platforms. Growth in the IP service platform market will also be driven by competitive IP and VPN services in the areas of security, data encryption, authentication, database storage and management, data mining, provisioning, billing, supply chain management, and real-time processing.
• IP Service Platform Market Will Continue to Burgeon as Broadband and IP Service Deployments Accelerate: In the long-term, market demand for IP service platform technology such as carrier broadband aggregation equipment will steadily expand at stable rates as the demand for value- added broadband and IP services increases, and as hosted applications are increasingly deployed. This is evidenced by CAGR projections of 11 percent during the course of 2004-08 for worldwide broadband aggregation equipment sales including annual revenue projections of $763.5 million during CY 2005 – a 17.7 percent increase over CY 2004 – and $841.0 million during CY 2006 – 10.2 percent increase over CY 2005 (according to Synergy Research). As broadband access and network applications with full-service management portfolios become the norm rather than the ideal among small and large businesses, initial hikes in service pricing will likely fall and settle due to overall carrier competition including inter-modal competition.
• IP Service Platforms Will Support Mobile Wireless and WLAN Traffic and Applications: IP service platforms have become customized to support aggregation of mobile wireless traffic and WLAN traffic with custom-built IP mobile wireless service platforms on the horizon in trial settings. IP service platforms will increasingly take on PSDN, GGSN, and home agent functions to fulfill evolving mobile wireless operator demands.
• IP Service Platforms Will Incorporate New Service Delivery Mechanisms and Capabilities: IP service platforms will take on new capabilities such as content and application integration, dynamic self-service functions, per-flow subscriber QoS/CoS, and XML-based service presentation to complement existing capabilities such as tunnel aggregation and service selection via URL redirects.
• SSL VPNs and 802.11 Hotspot Growth Will Play Bigger Role in IP Service Edge Technology: By 2005, 74 percent of mobile workers will use VPNs, up from 59 percent in 2003 (according to Infonetics) as many VPN adopters and deployers will use SSL as an alternative (or at least complement) to IPSec to reduce the challenges associated with deploying and managing client software. A third of the mobile workers, on average, access their VPNs from the road by using hospitality broadband connections; the use of 802.11 hotspots grows from an average of 2 percent now to 16 percent in 2005 (according to Infonetics) spurring IP service platform technology to integrate 802.11 support for applications such as visitor-based networking (for example WiFi, 3G, etc.).

Offensive vs. Defensive Responses:

IP Service Platforms Must Interwork with Traditional WAN Technologies Such as ATM and Frame Relay

Offensive

• IP service platforms that allow carriers to smoothly transition their traditional WAN networks to IP architectures will continue to hold a competitive edge over platforms that require “IP- only” architectures to achieve full value. This includes interworking with ATM and frame relay technologies as well as dial- up, TDM, and SONET technologies where appropriate. Additionally, the integration of technologies such as Graceful Restart support for OSPF, IS- IS, and LDP-DU, as well as eventual integration of mBGP Graceful Restart and OSPF non- stop routing, will aid the migration and interworking of traditional WAN technologies with IP.

Defensive

• Network architectures in the WAN, MAN, and LAN realms are steadily migrating toward IP-centric architectures, especially within the core, but this does not necessitate across- the-board adoption of Ethernet/IP in the access and edge portions of the network as a replacement of the major traditional WAN technologies at the edge of the network except when required by the carrier customer in certain deployment scenarios.

Small-to-Medium Business Sector Will Continue to Fuel Near-term Demand

Offensive

• The SMB sector will continue to play a key role in adoption of broadband services, thereby generating demand for IP service platforms, as SMBs continue to migrate from narrowband technologies such as dial-up and ISDN to DSL and T1. SMBs will also require more sophisticated IP service delivery functions from service providers as they transition from basic Internet access to value- added IP services such as e- commerce, VoIP (such as IP Centrex), NAT, advanced QoS, and VPN.

Defensive

• Demand for IP service platforms does not rest exclusively or primarily with SMB broadband adoption traits as residential broadband adoption and large enterprise adoption of broadband IP services such as IP VPN for branch offices and remote workers as well as outsourcing are two areas that will contribute to the adoption of IP service platform technology.

Broadband Residential Services Will Drive IP Service Platform Deployments

Offensive

• Residential adoption of broadband access technologies such as ADSL and cable modems (with fiber and broadband wireless also encouraging adoption) continue to spur the ongoing need of IP service platforms that can scale tunnel traffic, support service selection, as well as deliver evolving services such as firewalls, gaming, and bandwidth on demand.

Defensive

• Some carriers continue to struggle with basic broadband deployments with factors such as provisioning, management, operations streamlining, and CPE service automation still presenting problems for new residential broadband services. Thus IP service platforms will continue to perform fundamental aggregation functions before becoming ready for delivering a wide variety of IP services, including network- based services, on wider scales.

Broadband Business Services Such as VPN and Security Key

Offensive

• The ability to support security capabilities such as VPN, including site- to-site MPLS VPNs (L2 Martini and Kompella versions as well as L3 MPLS VPNs based on BGP) and IPSec tunnel termination, and an expanding array of security capabilities such as firewall, authentication flexibility, encryption processing, and content filtering will prove critical in differentiating IP service platform technology.

Defensive

• IP service platforms do not necessarily need to deliver a wide variety of advance security services in order to meet near-term customer demands as QoS and tiered service offerings present opportunities to prove IP service platforms before taking on a wider array of network functions such as security functions.

IP Service Platforms Require Versatility

Offensive

• IP service platforms that can fulfill traditional broadband aggregation functions such as PPP aggregation and L2TP aggregation (such as L2TP access concentrator, L2TP network server) along with a wide range of evolving service provider requirements such as IP QoS, tunnel aggregation, MPLS traffic engineering and VPNs, support of value-add IP services such as IPSec, NAT, DoS attack prevention, virus scanning, SSL, and content filtering support, and integration with appropriate billing, directory, and management systems (to name a few) will succeed in the highly competitive IP service platform realm.

Defensive

• Many carriers continue to roll out new IP services in a cautious manner, putting more emphasis on fulfilling the basic needs of broadband customers before upselling new IP services. This has resulted in less urgency in areas such as scaling IP service platforms to mega-PoP dimensions (such as millions of subscribers per rack) and supporting network- based services such as intrusion detection.