MANAGED SERVICES IN AN IP WORLD: GLOBAL OPPORTUNITIES FOR WIRELESS AND WIRED NETWORKS

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1 MANAGED SERVICES IN AN IP WORLD: GLOBAL OPPORTUNITIES FOR WIRELESS AND WIRED NETWORKS MARCH 2013 PO Box 34 Mountain Lakes, New Jersey USA phone

2 What follows is an excerpt from s 173-page report. For more information, please go to Pricing Information: Hard Copy Price $ 3995 Electronic Copy Price $ 4695 Single-User Printable PDF $ Seat Printable PDF $ 10,000 Unlimited Corporate-Wide Distribution The contents of this study represent our analysis of the information generally available to the public or released by responsible individuals in the companies mentioned. It does not contain information provided in confidence by our clients. Since much of the information in the study is based on a variety of sources that we deem to be reliable, including subjective estimates and analyst opinion, The INSIGHT Research Corporation does not guarantee the accuracy of the contents and assumes no liability for inaccurate source materials. Copyright 2012 by The INSIGHT Research Corporation. All Rights Reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, prior to written permission of the publisher.

3 CHAPTER I EXECUTIVE SUMMARY 1.1 Why Managed Services? Several recent INSIGHT studies show only modest revenue growth in basic transport services and outright declines in more mature areas, such as wireline services and infrastructure equipment. The telecommunications market is a mature industry, exhibiting only low single-digit growth each year. The Managed Services market, on the other hand, will grow faster than basic transport as businesses of all sizes look to service providers to deliver the next generation of business applications, while simultaneously migrating their supporting telecom networks to newer technologies, such as IP, cloud, and wireless. The complexity faced in managing these applications and networks, coupled with limited resources, declining budgets, disparate networks and support systems, is driving the IT manager to managed services. The US and global economic growth that seemed to be starting in 2010 has waned and we will likely see another year of slow growth through Throughout 2012, US unemployment and consumer confidence continued to drag on the economy. The unemployment rate in the US will likely remain around eight percent through 2013, which is almost double the average rate of the past thirty years. According to the World Economic forum, North America, GDP growth in 2013 will remain low at 2.1 percent. The prognosis for Europe, with the continued sovereign debt threat, is even worse with GDP growth at 1.4 percent through Over the past two years, the global telecommunications market has been buoyed by the progress in Asia and Latin America, although that growth is also continuing to drop. The WEO GDP growth forecast in 2013 for AP is 4.1 percent and for LA is 3.5 percent well below their high single-digit GDP growth rates of the past two years. With the global and the US economy stagnant, and businesses not hiring, enterprise IT departments must still find a way to deploy those new applications. Increasingly, enterprise application performance is becoming critical to the health Chapter I Reproduction without permission 1

4 of businesses. A large percentage of business activity now depends on the Internet from everything from electronic commerce to intranet applications to customer service. Increasing use of video and wireless services is driving exponential bandwidth demands onto enterprise networks. As more endpoints and applications are added to enterprise networks the combined traffic will drive an order of magnitude increase on to enterprise networks. Managed Services can help solve these IT challenges. Managed Services let enterprises outsource the most complicated elements of their information systems, including network management across multiple transport providers and devices. With limited IT staffing, the enterprise can focus on the developing the corporate application, while outsourcing the network design, installation, and management to a provider who has the state of the art tools and skills to do it right. New cloud-based applications can be deployed in weeks, allowing the enterprise to rapidly respond to their customer s evolving needs. Managed Services are deployed locally but managed remotely by a third party from a centralized operations center. Generally, Managed Services incorporate both equipment and transport services as standard elements. Optional capabilities include security, storage, professional services, and application management. Enterprises that now manage separate voice, data, wired, and wireless networks will eventually have to integrate all of these elements into a single platform. The complexity faced by the enterprise manager in running voice, data, and video applications across a shared IP network can be understood by looking at the multiple networks, support systems, and services that have to be integrated into a modern corporate network. The large percentage of business activity that has transitioned to electronic commerce has heightening the need for networks to remain available around the clock. Without a managed solution, the IT manager must oversee a network of multiple technologies, providers, and devices. Managed Services can offer 24x7 monitoring of network performance, improved application performance, and predictable service levels. IT managers want the advantages of a single platform to deliver integrated business applications across their wired and wireless networks, but they cannot afford the increased IT staff to manage this new complexity, given the current Chapter I Reproduction without permission 2

5 state of the economy. Managed service providers offer a way to resolve the issue. Everything from access platforms to backbone switches to security can be outsourced to a provider, who can offer a cohesive set of management tools to control network performance. The scope of Managed Services examined in detail in this study is defined in Figure I-1 and Table I-1. Figure I-1 Managed Services Segments MANAGED SERVICES WIRELINE/WIRELESS DATA CENTER LAN WAN INFRASTRUCTURE Chapter I Reproduction without permission 3

6 Table I-1 Managed Services Segments Segment Scope Example Managed LAN Managed WAN Managed Mobility Infrastructure Management Managed Data Center Management across LAN to the Network Interface Management across the WAN, from Network Interface to Network Interface Management and Coordination of Mobile devices and associated applications Turnkey Network deployment and management Management of all elements within Network Data Center Managed IP PBX Managed VPNs Managed Sales Force Automation 3G/4G Network Management Managed Cloud Computing Note: 3G = third generation, 4G = fourth generation, PBX = private branch exchange, VPN= virtual private network, LAN = local area network, WAN = wide area network, Managed Services are a cost-effective alternative to increasing internal staffing. Despite the modest recovery from the recession, staffing remains flat, while enterprise information technology need are increasing. Managers are faced with the challenge of increased networked applications, higher bandwidth needs, and new network equipment such as smartphones, tablets and cameras at the edge. At the same time, network-based applications performance is becoming critical to the health of business operations. Outages of any length can have a major impact on business profitability, as an increasing amount of business activity is conducted online. Growth in the US service economy and increased electronic bonding with customers and suppliers will drive ever greater demand for wireless and IP networked applications. Internal IT departments do not have the staff to handle the increased demand from these IP applications, which have grown exponentially with Internet traffic, doubling every one to two years. IT managers must also handle these other challenges: integration of wireless and wireline traffic; device proliferation: smartphones, tablets and cameras 24x7 coverage and rapid time-to-repair; Chapter I Reproduction without permission 4

7 maintaining quality of service as voice, data, and video ride atop the same shared infrastructure; broadband traffic replacing narrowband; end-user roaming across multiple wireless platforms and providers; and The Managed Services provider is in the best position to solve such complexities. These providers can leverage their scale, tools, and skills to deploy an end-to-end solution, while providing the 24x7 coverage essential to maintaining today s business networks. Increasingly, businesses look to third-party service providers to manage the complexity of branch offices, foreign manufacturing sites, mobile employees, and new access technologies. Managed service providers mitigate the complexity, ensure systems and employees stay connected around the clock, and are a cost-effective alternative to increasing internal staffing. 1.2 Industry Structure In the US alone, there are over 400 Managed Services providers. Providers include telco carriers, cable operators, equipment vendors, and system integrators. These companies provide one or more services in the segments identified in Table I-1. For example, carriers such as Sprint, Verizon, and AT&T have offered managed WAN services as the centerpiece to their managed portfolio. Equipment vendors such as Alcatel-Lucent and Cisco have offered LAN installation and monitoring services in connection with their equipment sales. Systems integrators such as IBM and HP offer customized managed solutions covering multiple segments. Managed Services provide an opportunity for carriers and equipment providers to achieve higher financial margins than they operate at today. Basic telecom service prices no longer track with prices of other business services, and telecom price erosion will continue to put pressure on carrier margins. System integrators, such as IBM and HP, have already proven that with the right scale economies and technological innovation they can deliver service elements at a lower cost than would be incurred internally by the enterprise. These systems integrators have historically achieved higher margins by commanding a price premium for delivering end-to-end solutions. Chapter I Reproduction without permission 5

8 The opportunities for service providers are extensive, and their strengths in customer relationships and core competencies should guide which segment they address. Conversely, they also have weaknesses, and to succeed in a particular segment may require additional resources and capital investments to succeed. Table I-2 shows the Strengths and Weaknesses of each service provider type. Table I-2 Service Providers Strengths and Weaknesses Telecom Carriers Cable/MSO Equipment Vendors System Integrators Strengths Customer relationship Network and OSS integration Scale economies Broadband access Customer relationship Hardware/software platforms Customer relationship Scale economies End-to-end solutions Application integration expertise Custom solutions Weaknesses Application management Flexibility Customization Enterprise expertise Nationwide footprint New to Managed Services business Facility ownership Network and OSS integration Small-medium business penetration Facility ownership Network and OSS integration Note: OSS = operation support system Managed Services providers of all stripes including the carriers can follow a similar strategy. Managed solutions can expand market and channel opportunities by allowing the providers to reach customers and IT decision makers who they do not reach today. In addition to expanding market reach, carriers can improve financial margins by offering integrated solutions. While improving margins is likely with managed service offers, it also requires additional investment in systems along with skill training to solve the complexity at the service provider level. Managed Services can be provided to businesses of all sizes; however, the best opportunity is in the medium-sized business segment with employees. Businesses of this size generally do not have the technical staff sufficient to Chapter I Reproduction without permission 6

9 manage increasingly complex networks. Small businesses with employees generally do not have multiple locations and do not have the financial resources to deploy advanced services; however, they do provide opportunities for basic management services, such as LAN management. Large businesses, with over 500 employees, often have multiple locations, remote and mobile workers, and multiple networked applications. Large businesses have the resources to manage their own networks; however, increasingly they resort to outsourcing some of the more complex functions, such as data center management and IP routing. Examples of Managed Services solutions for each business size are shown in Table I-3. Table I-3 Managed Service Solutions by Business Size Business Size Employees per Firm US Firms Average Locations per Firm Description Small M 1 Medium K 2-10 Single proprietorships, Home businesses, Independent agents, Retail outlets Broad range of businesses either in a single location or HQ with satellite offices and a mobile field staff Large (Enterprise) K Global business operating across many locations, with fixed and mobile workforce. The requirements for each business stratum are different, and service providers trying to address all strata small, medium, and large need to consider the multiple investments and resources required to serve each segment. 1.3 Managed Service Industry Forecast The forecast of Managed Services revenues is a product of the services, technologies, and industry forces discussed in this report. They include: Chapter I Reproduction without permission 7

10 Employment Growth expansion of the services workforce; Business Establishments location growth and interconnected endpoints; Mobile Workforce increasing use of field and remote workers; Telecommunications Spending double-digit unit volume increases, pricing declines, service migrations, and technology substitution; Networking Convergence the convergence of wireline and wireless networks to support enterprise applications; and IT Management Trends IT spending and staffing limitations in an environment of increasing networked applications These services, technologies, and forces will have impacts on multiple segments. The US and global Managed Services market will grow more than twice as fast as basic transport revenues for two reasons: the migration of un-managed services to Managed Services, and the shift to new IP and wireless services. The rate of growth by segments of the Managed Services market ranges from 10 to 12 percent over the forecast period. In contrast, growth of telecom business services will grow at low single-digit rates over the same time frame. INSIGHT has expanded the scope of this report beyond the US market to include the global market for Managed Services. All of the US sub-segments detail remains, while we have added full segment detail for North America (NA), Europe, Middle East and Africa (EMEA), Asia and Pacific Rim (AP), and Latin America (LA). This increased scope should benefit readers who participate in these other markets, as well as US-based readers who look to enter these regional markets. INSIGHT s analysis suggests that the global Managed Services market will grow from $137 billion in 2012 to $235 billion in 2017, at a 11.3 percent CAGR, as we note in Figure I-2. Chapter I Reproduction without permission 8

11 Figure I-2 Global Managed Services Market by Region, ($Billions) $Billions NA EMEA AP LA Also in this report revision, we provide more detail on the most important technologies and trends impacting Managed Services, including the shift to cloudbased services, machine-to-machine (M2M), Ethernet, and wireless substitution. The list of service provider offerings has been updated to reflect some of the new players and services in this market. Managed Services providers are often the earliest adopters of these technologies, as they have expertise, capital, and systems that allow them to deliver solutions well before in-house deployments. The business opportunities for the Managed Services provider include broader market opportunities, higher margins, centralization of support functions, and lower customer churn. In addition, many of the capabilities developed to serve one segment of the Managed Services value chain can be leveraged to enter adjacent segments. Chapter I Reproduction without permission 9

12 MANAGED SERVICES IN AN IP WORLD: GLOBAL OPPORTUNITIES FOR WIRELESS AND WIRED NETWORKS TABLE OF CONTENTS Chapter I EXECUTIVE SUMMARY Why Managed Services? Industry Structure Managed Service Industry Forecast...7 Chapter II OVERVIEW OF MANAGED SERVICES Managed Services Momentum Continues Definitions Used in this Report Telecommunications Market Value Proposition for Managed Offers Overview of Managed Services Providers Service Provider Opportunities...19 Chapter III MANAGED SERVICES AND MARKET SEGMENTS Managed Services Segments Managed LAN Services Managed WAN Services Remote Access VPNs Managed Ethernet Services Managed VoIP Services...32 Table of Contents Reproduction without permission i

13 3.3.5 Managed Security Mobility Management Mobility Services Managed Mobile Applications Infrastructure Management Data Center Management...42 Chapter IV SERVICE INDUSTRY FORCES Drivers of Managed Services Employment Trends Business Establishments Mobility and the Workforce US Business Telecommunications Spending The Global Picture Global Economy Global Employment Global Internet Penetration Global Mobile Subscribers IT Management Trends Industry Structure Power of Suppliers Power of Buyers Availability of Substitutes Threat of New Entrants Competition...70 Chapter V MARKETS & TECHNOLOGY Managed Services Segments and Drivers Business Size Characteristics Vertical Markets Network Convergence IP Technology Ethernet Services Fiber Optics Wireless Mobility...91 Table of Contents Reproduction without permission ii

14 Chapter VI SERVICE PROVIDERS Provider Segments Telecom Carriers AT&T Level CenturyLink Sprint TW Telecom Verizon Cable Operators Comcast TW Telecom Cox Communications Charter Cablevision Equipment Vendors Alcatel-Lucent Cisco Systems Ericsson Juniper Siemens System Integrators Hewlett Packard IBM Chapter VII FORECASTS Methodology & Forecast Definitions Managed Services Forecast Summary US Managed Services Forecast Summary Global Managed Services Forecast Summary US Managed Services US Managed Services by Segment US Managed LAN Services US Managed WAN Services Table of Contents Reproduction without permission iii

15 7.3.4 US Mobility Management US Infrastructure Management US Managed Data Center Services Managed Services in Global Regions North America Managed Services Europe, Middle East, Africa Managed Services Asia Pacific Managed Services Latin America Managed Services Global Managed Services by Segment Conclusion Appendix GLOSSARY Table of Contents Reproduction without permission iv

16 Table of Figures The Chapter I I-1 Managed Services Segments...3 I-2 Global Managed Services Market by Region, ($Billions)...9 Chapter II II-1 Segments and Managed Services Providers...13 II-2 US Telecommunications Revenue by Market, 2012 ($Billions)...15 II-3 Telecommunications Value Chain...17 Chapter III III-1 Managed Remote Access...26 III-2 Managed WAN Optimization...28 III-3 E-LAN Network...30 III-4 Managed VoIP Diagram...33 III-5 AT&T s Wireless WAN Service...36 III-6 Inventory Management Flow...39 III-7 Alcatel Managed Services Model...42 III-8 Managed Cloud Services...43 Chapter IV IV-1 US Employment, (Percentage)...48 IV-2 Projected US Employment Growth by Major Occupational Groups, 2010 and IV-3 Employment and Teleworkers, (Millions)...52 IV-4 Managed Endpoints, (Thousands)...53 IV-5 Distribution of US Establishments, 2008 (By Number of Employees)...54 IV-6 Percentage of World's Population Covered by a Mobile Cellular Signal, 2003, IV-7 US Business Wireline Data Market Share, 2010 and IV-8 Real GDP; Quarterly Percent Change, IV-9 Global Internet Access Penetration, IV-10 Managed Services Gross Margins...67 Table of Contents Reproduction without permission v

17 IV-11 Porter s Five Forces...68 The Chapter V V-1 US Business Wireline Revenue by Vertical Market, V-2 US Business Wireless Revenue by Vertical Market, V-3 Converged Networks...78 V-4 Fixed Mobile Convergence...80 V-5 AT&T s Ultra-available Managed Network Service...82 V-6 Ethernet Network...84 V-7 Managed Carrier Ethernet Network Wireline and Wireless...86 V-8 Carrier Ethernet Evolution...87 V-9 FTTx Network...89 V-10 US FTTH Home Passed and Connections, (Millions)...90 V-11 Regional Wireless Penetration, V-12 US Wireline Access Lines and Wireless Subs, 1988 to 2012 (Millions)...93 Chapter VI VI-1 AT&T Managed Internet Service VI-2 AT&T s MPLS Private Network Transport Services VI-3 AT&T s Ultravailable Managed Network Service VI-4 AT&T s US Enterprise Hosting Services VI-5 AT&T s US WiFi Hotspots Managed Internet Service VI-6 CenturyLink National Footprint VI-7 Integrated Managed Services VI-8 Comcast Fiber Backbone VI-9 Cablevision Network Service Areas VI-10 Alcatel Managed Services Model VI-11 Cisco s Machine-to-Machine IP NGN Infrastructure VI-12 Converged Application Server Chapter VII VII-1 US Managed Services Revenues, ($Billions) VII-2 Global Managed Services Revenues, ($Billions) Table of Contents Reproduction without permission vi

18 VII-3 US Managed Services Revenue, by Segment, ($Billions) VII-4 US Managed LAN Services Revenue, ($Billions) VII-5 US Managed WAN Services Revenue, ($Billions) VII-6 Managed WAN Services Distribution, VII-7 US Managed IP VPN Endpoints, (Thousands) VII-8 Managed VPN Revenue, ($Billions) VII-9 Managed VLAN Revenue, ($Billions) VII-10 Managed Security Services Revenue, ($Billions) VII-11 Managed VoIP Revenue, ($Billions) VII-12 US Managed Mobility Services, ($Billions) VII-13 US Infrastructure Management Revenue, ($Billions) VII-14 US Managed Data Center Services Revenue, ($Billions) The Table of Contents Reproduction without permission vii

19 Table of Tables The Chapter I I-1 Managed Services Segments...4 I-2 Service Providers Strengths and Weaknesses...6 I-3 Managed Service Solutions by Business Size...7 Chapter II II-1 Managed Services Segments...12 II-2 Managed Services Providers Strengths and Weaknesses...19 Chapter III III-1 Managed Services Providers Strength by Market Segment...23 III-2 IP VPN Access Drivers...28 III-3 Elements and Features of IP/MPLS Networks...29 III-4 Characteristics of Ethernet Services...31 III-5 Elements of Managed Mobility Services...37 Chapter IV IV-1 Projected US Employment by Major Occupational Groups, 2008 and 2018 (Millions)...49 IV-2 Mobile Cellular Subscriptions, by Level of Development, (Millions)...55 IV-3 Evolution of Enterprise Applications, IV-4 US Business Wireline Revenues, ($Billions)...59 IV-5 Global Mobile Subscribers Forecast, (Millions)...64 Chapter V V-1 Managed Services Segments and Drivers...71 V-2 Business Size Characteristics...73 V-3 Ethernet Services Characteristics...85 V-4 US Wireless Statistics, Table of Contents Reproduction without permission viii

20 Chapter VI The VI-1 Managed Services Providers by Market Segment...97 VI-2 Comcast Ethernet Services Chapter VII VII-1 US Managed Services Revenue, ($Billions) VII-2 Global l Managed Services Revenues, ($Billions) VII-3 US Managed Services Revenue, by Segment, ($Billions) VII-4 US Managed LAN Services Revenue by Sub-Segment, ($Billions) VII-5 Managed WAN Services Revenue by Sub-Segment, ($Billions) VII-6 Managed WAN Services Distribution, 2012, VII-7 US Managed IP VPN Endpoints, (Thousands) VII-8 Managed VPN Revenue, ($Billions) VII-9 Managed VLAN Revenue, ($Billions) VII-10 Managed Security Services Revenue, ($Billions) VII-11 Managed VoIP Revenue, ($Billions) VII-12 US Managed Mobility Services, ($Billions) VII-13 US Infrastructure Management Revenue, ($Billions) VII-14 US Managed Data Center Services Revenue, ($Billions) VII-15 Regional Managed Services Revenues, ($Billions) VII-16 North America Managed Services, ($Billions) VII-17 EMEA Managed Services, ($Billions) VII-18 AP Managed Services, ($Billions) VII-19 LA Managed Services, ($Billions) VII-20 Global Managed Data Center Services Revenue, ($Billions) VII-21 Global Managed LAN Services Revenue, ($Billions) VII-22 Global Managed WAN Services Revenue, ($Billions) VII-23 Global Managed Mobility Services Revenue, ($Billions) VII-24 Global Managed Infrastructure Services Revenue, ($Billions) Table of Contents Reproduction without permission ix