Justifying NFV to the CFO: the vCPE services business case

TM FORUM LIVE 2016

JUSTIFYING NFV TO THE CFO:

THE vCPE SERVICES BUSINESS CASE
9 MAY 2016
Larry Goldman

Analysys Mason Limited 2015

Justifying NFV to the CFO: the vCPE services business case

Introduction to the business case model

NFV/SDN first movers ROI for delivering enterprise and
Focus residential CPE-enabled services
Migration of existing customers to vCPE

Enterprise vCPE for managed network and security services

for large enterprises only
Use cases
Residential virtual CPE (set-top-box and residential broadband
CPE) for double- and triple-play services
Composite Tier 1 developed markets derived from
CSP profile* benchmarks, CSP interviews and secondary research
110k enterprise sites; 17m residential households

Other 5year migration with after initial 1year of investment

Impact on CPE supply management (SM), order to cash (O2C)
considerations & trouble to resolve (T2R) processes (capex & opex)
* Model is flexible and reconfigurable to developing markets

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Justifying NFV to the CFO: the vCPE services business case
Enterprise vCPE is a case for revenue; residential vCPE is a
case for cost savings

NPV = USD1.1 billion

Enterprise vCPE ROI = 156%

Payback period = 3.1 years
Cloud VPN WAN Bandwidth 47% cost savings per site
optimisation scheduling
79% O2C improvement
Firewall ADC
NPV = USD0.5 billion Residential vCPE
ROI = 49%
Payback period = 4.9 years Set-top box IPv4/v6 NAT

82% cost savings per household DHCP Firewall TR-069

68% order-to-cash cost reduction

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Justifying NFV to the CFO: the vCPE services business case
Enterprise vCPE: 79% improvement in O2C will underpin
USD1.4 billion new revenue

42% CPE supply management savings USD1.4B Revenue uplift

5%
through upsell
revenue benefit and cross-sell
VNI/vCPE reuse; lower priced COTS over 5 years
equipment; faster implementation NFV/SDN-enabled
managed networking
~4 p.p services:
79% Order to cash improvement
EBITDA Dynamic VPN or WAN
improvement after configuration
Automated delivery of NFV services Self-service
5 years
bandwidth on-

61% Trouble to resolve cost reduction 47%

demand
Data centre
cost saving per site interconnect services
Reduced call handling, MTTF per year, after Security as a service
and fewer site visits migration VNF as a service

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Justifying NFV to the CFO: the vCPE services business case
Residential vCPE: up to USD1.34 billion net cost savings can
drive initial investments in digital home services
90% CPE supply management savings USD1.3B Increase in
Cheaper CPE hardware & procuring net cost savings upsell and 5%
Efficient and effective reuse, upgrade, repair, over 5 years cross-sell
manage, pre-configure, and warehousing
82% Upgrading
68% Order to cash improvement cost saving per broadband
Automation of service changes/upgrades, household per year, bandwidth or tariff
termination, and configuration after migration double-play to
Fewer visits for on-net services triple-play
USD655M adding video (e.g.
54% Trouble to resolve cost reduction IPTV)
revenue benefit increasing cloud
Fewer faults with plug and play kit over 5 years
Reduction in site engineer visits DVR storage
Reduced customer compensation

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Justifying NFV to the CFO: the vCPE services business case
CSPs need to reach a critical mass of 40% for enterprise and 50%
for residential vCPE customer migration
Enterprise vCPE cashflow Residential vCPE cashflow
1,000 120,000 1,200 18
Competitive pricing will Competitive pricing can
reduce benefits 1,000 reduce cost benefits 16

Number of enterprise vCPE sites

800 100,000

Customers migrated (millions)

14
Cashflow (USD millions)

Cashflow (USD millions)

800
600 Critical 80,000 12
mass:~40% 600
Critical
of sites 10
400 60,000 400 mass:~50%
of customers 8
200
200 40,000 6
0
4
0 20,000 Year0 Year2 Year4 Steady
Year0 Year2 Year4 Steady -200 state 2
state
-200 0 -400 0
Cash Flow Total vCPE sites Cash Flow Total vCPE customers
Excludes SME revenue and new site additions

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Justifying NFV to the CFO: the vCPE services business case

Key assumptions used in the model

Pay-as-you-grow VNF license after initial (Year0)
vCPE PnP and PAYG investment, and PnP vCPE to reduce site visits
vCPE reuse and procurement benefits were detailed
Savings on actual man- Benefits are NOT calculated on elapsed time, as
hours scheduling is lengthy

Cost duplication (existing and new spend) is included

Migration model in the model

No field visits for On-net No field visits needed for on-net vCPE connections

P2P, access network build, training, sales and

BAU excluded marketing, new line installation

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Justifying NFV to the CFO: the vCPE services business case

Overview of enterprise vCPE architecture used in the model

Cloud VPN WAN

optimisation

Firewall ADC Bandwidth

scheduling
vNGN OSS
VNF store
Service request, Automated order Service Service
Drag & Drop capture, service fulfilment assurance
VPN ADC design translation
FW WoC
Self-care Service orchestration
portal
Zero-touch,
Rapid remote
automated Network orchestration
delivery of
network scaling &
VNFaaS
Virtual Customer configuration
SDN
Premises Equipment VIM
controller
(vCPE) Virtual Provider Edge
(vPE)

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Justifying NFV to the CFO: the vCPE services business case

Overview of residential vCPE architecture used in the model

Enables vNGN OSS

Virtualised control
Service Service
of CPE
fulfilment assurance
IPv4/6 Set-top box
Residential customer Service orchestration
premises equipment vBRAS
UPnP
(CPE) vDHCP TR-069 Network orchestration
Access Modem
point Switch SDN
vCGNAT VIM
IPTV Other services controller
Service layer

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Justifying NFV to the CFO: the vCPE services business case

Enterprise and residential vCPE have key differences which were

factored into the model

Enterprise vCPE Residential vCPE

High ARPU revenue case Low ARPU

Higher growth market Low growth market

Lower total costs with stronger PAYG Lower total costs with stronger PAYG
model model cost savings case
Lower data centre costs with Higher data centre costs for
enterprise vPE residential vCPE build out
Price erosion eats into cost savings
Price erosion affects revenue benefit
benefit

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Justifying NFV to the CFO: the vCPE services business case
vCPE is in the network virtualisation front seat thanks to this
business case, thanks to strong voices in the industry
Some customers dont, and never will, SDN-enabled network-on-demand is driving
see the need to pay for a special set-top up to 95% improvement in our provisioning
box to watch TV. cycle times and getting rave reviews.
Brian L. Roberts, Comcast John Donovan, AT&T

Thank you for pointing out the first

mover advantage. Telefnica mainly expect its vCPE solution
to reduce costs, but also to deliver new
Incumbent EMEA CSP services to residential customers in at least
half the time it takes today.
We were doing a vCPE business case and
need to reconsider now. Telefnica Group, 2014

Tier-1 global vendor

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Justifying NFV to the CFO: the vCPE services business case
Key takeaways this case is IF to go forward with vCPE
services
USD1.4 Billion Enterprise vCPE case for revenue

82% Residential vCPE case for savings

156%, 49% ROI First movers advantage is real

79%, 68% Order-to-cash automation and self-provisioning

provide tactical opex savings and strategic revenue
O2C improvement increase

Next step: HOW to go forward with vCPE services

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 Justifying NFV to the CFO: the vCPE services business case
The next NFV/SDN business cases will be driven by video services
for vCDN and vEPC, and IoT and M2M services for vEPC
IPTV service revenue, worldwide1 IoT/M2M connectivity-related revenue and average revenue per
connection (ARPC)
70 3.5
50
60 3.0
45

Revenue (USD billion)

50 2.5
40 43

ARPC (USD)
Revenue (USD billion)

41 40 2.0
35 38
35 30 1.5
30 32 20 1.0
25 28
10 0.5
20
8.7% 0 0.0
15

2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
10
Automotive and transport Financial services
5 Healthcare Industrial
0 Public sector Retail
2015 2016 2017 2018 2019 2020 Security Utilities
Source: Analysys Mason Other ARPC Source: Analysys Mason
2 For more details, see Analysys Masons M2M device connections and revenue: worldwide forecast
1 For more details, see Analysys Masons Global telecoms market: trends and forecasts 20152020. 20142024.

Analysys Mason Limited 2015 13

Justifying NFV to the CFO: the vCPE services business case Analysys Mason
report to be
NFV/SDN for fixed video will enable cost-effective transition to multi- published in
June/July 2016
screen/OTT and 4K/8K services to protect and grow revenue

vCDN Network Cloud DVR Opex Service

30% savings upsell &
Capex capex efficiencies vs. STB
savings with SDN DVR from reduce
savings churn
Reduced
from using Increased vProbes Centralised,
time-to- Multiscreen/
Cloud video scalability for Video traffic re-usable
market OTT
SDP vs. on- managing optimisation cloud storage
premise traffic peaks Deferrred savings Increased services
CSP-owned network capex efficiencies targeting
Cloud storage
vCDN vs. in P2P, T2R new
upsell
Global CDN and O2C segments

Analysys Mason Limited 2015

Justifying NFV to the CFO: the vCPE services business case Analysys Mason
Model results & updates 15
report to be
Mobile video case is will be driven by a mix of new revenue and cost published in
June/July 2016
savings convergent CSPs are likely to have the biggest benefits

Monetise Mobile Video traffic Fixed-mobile Mobile vCDN

mobile video advertising optimisation convergence savings

Sell & upsell new New revenue Mobile-specific SDP and CDN CSP-owned vCDN
mobile video from mobile & video/content overlaps for vs. Global CDN
services (i.e. location-based optimisation delivering both
unlimited OTT advertising i.e. fixed and mobile
Mobile-edge
video, original events, video services at
computing
content etc. ) sponsorships lower cost and
(MEC)
etc. higher revenue

Analysys Mason Limited 2015

Justifying NFV to the CFO: the vCPE services business case

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Justifying NFV to the CFO: the vCPE services business case

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Justifying NFV to the CFO: the vCPE services business case
Contact details
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Tel: +1 202 331 3080
Larry Goldman Fax: +1 202 331 3083
boston@analysysmason.com
Partner Head of Telecoms Software Cambridge
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Research Fax: +44 (0)1223 460866
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