Vodafone and the contradictions of carrier self-reliance

Alexander Harrowell/Ovum
20 Oct 2016

At its recent analyst day, Vodafone presented two network functions virtualization (NFV) products – a deployment of Cisco’s IWAN and a new solution, Vodafone VPN+, developed largely in-house.

The first of these represents the enduring pull of the big-brand network vendors; the second, the tantalizing possibility of breaking away from them.

Escaping vendor dependency is good, but convincing customers is better

In the 2000s, it was popular for operators to outsource as much of the network as possible, usually to their main vendor. This was thought to free the operator to concentrate on branding and customer service, the only ways to achieve differentiation in a supposedly homogenous product. It also helped to swap capex for opex, a good call when nonzero interest rates were still a thing.

Now, however, we see the confluence of a technology trend and an economic driver. On one hand, the smartphone boom is peaking out, while voice revenues continue to erode. On the other hand, network virtualization offers new possibilities in terms of operational agility, cost reduction, supplier diversification, and continuous improvement. Operators are beginning to use the NFV transition as a way to escape their dependency on the vendors, differentiate themselves, and gain hard-to-replicate technical equity in their services.

Vodafone VPN+ is an example of this. Vodafone is acting as its own systems integrator and holding “bake-offs” to pick each virtual network function (VNF). The carrier hopes to use a “white box” unified CPE, managed through its new Virtualisation Hub API. Trials are set for 4Q with release to production for the UK and global enterprises in 1Q18, with Fortinet’s vFirewall as the first app.

Vodafone execs gave “much greater self-control” and a desire “not to become a Cisco shop” as key drivers of the project. Also, some vendors wanted Vodafone to buy a new software license for each customer.

Everything we’ve mentioned so far has one thing in common: It’s binding on the operator, not the customer. The customer shows worrying signs of refusing to cooperate.

Vodafone’s other SD-WAN product, the Cisco IWAN, already has a £150 million order pipeline. SMEs especially are skeptical and keen to protect their existing investment in Cisco hardware. Even more importantly, the key decision-makers want to protect their personal investment in Cisco skills.

Mastering the IOS command line remains a core craft skill for any network engineer, and our 2016 SME & SoHo Insights survey found that a typical SME has between one and five very busy IT specialists. Asking them to reskill will always be a very hard sell.

In the longer term, Vodafone would like to deal with this by reducing Cisco products to VNFs in a Vodafone platform. That would work, but as one Vodafone manager said at the event, “Some vendors wish SDN would die.” No wonder they are difficult about intellectual property terms.

However grouchy the vendors may be, the virtualization ship has sailed, and in the end they must sell or become irrelevant. As we begin to manage networks through APIs and libraries rather than configuration files and command lines, the value of a generation of network engineers having memorized the syntax will waste.

It will still be necessary, though, to convince customers that all this disruption brings business value. Both large enterprises and SMEs will need distinct and very different treatment to either tech startups or telco engineering organizations.

Alexander Harrowell is a senior analyst for enterprise services at Ovum. For more information visit www.ovum.com/

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