Operators commonly expect that moving to SDN and NFV will enable cost reductions, through efficiency gains in network management and device consolidation. As they get closer to deployment, however, commercial reality is telling a different story, depending on the market segment being addressed.
One area where the ROI for white-box CPEs is easy to justify is appliance consolidation. If you can consolidate a number of proprietary appliances into a single white-box CPE then the CAPEX savings are clear. Chaining, for instance, a vRouter, a WAN optimizer and a next-generation firewall into one single x86 appliance (i.e. a white-box CPE) delivers immediately identifiable cost savings: one appliance instead of three is basically the formula and this is a commonly targeted combination. Combine this with the prospect of increased wallet share from large enterprises, which often run their networks themselves in do-it-yourself mode, and the large enterprise segment looks increasingly attractive for operators.
Let’s be clear, though: this is just a large enterprise play. SMBs and multi-site deployments for government or highly distributed organizations have no need for WAN optimization and little need for a next-generation firewall; the on-board firewall that comes with their router together with a PC-based anti-virus subscription and email antispam service are usually sufficient. As a result, anyone working on building business cases for white-box CPEs for the volume part of the market will attest that ROI a tough nut to crack.
The draw for this market segment is the potential to increase ARPU by making it easier and more flexible to use additional services through automated service delivery via virtualization.
In terms of hardware CAPEX, the cost of white-box CPE deployment outstrips that of traditional CPEs. For the large enterprise segment which often deploys multiple appliances, this cost increase is compensated by reducing the number of appliances. For other market segments, where a single CPE is more typically deployed, savings need to come from OPEX reductions or TCO savings. The latter, however, is notoriously difficult to calculate and is usually irrelevant in a context where staff reductions are difficult to achieve, particularly in a period of technology transition.
So, the focus has to be on reducing OPEX and doing so in a way that can be immediately understood. Operators are therefore tackling the areas where long term savings are obvious, such as deployment automation and customer self-service. Here, human labour is substituted by virtual processes and the resultant cost savings, even if they aren’t easily calculable, are clearly apparent.
What about ARPU or upsell? The kind of services that an operator can upsell via traditional CPE is limited to a few Quality of Service classes and circuit speed enhancements. The ability to upsell services like hybrid-WAN and security will require replacing existing classical CPEs by virtualized white-box CPEs.
Yet most operators calculate that only a small percentage of the volume market will buy these add-on services – between 10-20% are the most common working estimates. So why equip all customers with an expensive white-box CPE on the off-chance that they buy additional services? As we can see, the ROI question becomes even more challenging in this context.
As we know, using white-box CPEs creates a much more virtuous circle: they can be deployed in every country (standardized hardware can be more easily maintained globally); and they enable automated, on-demand service activation. So, the customer can trial different services for themselves and buy those that deliver value. In this model, the cost of customer acquisition is also dramatically reduced.
As discussed above, calculating the ROI for a transition to a white-box CPE environment for the large enterprise segment is relatively easy as the twin prospects of appliance consolidation and increased wallet share make the calculation enticing. For the volume part of the market a more imaginative vision is required: those brave enough to move first have the chance to be first to market with their portfolio of virtualized services, or virtualized network functions (VNF), which means early competitive differentiation and reduced time-to-revenues.
With this in mind, however, operators’ evaluation criteria should consolidate around which VNFs are going to be popular with their customers, together with the revenue potential of each service. Based on these projections, together with the compute resources required to deliver these VNFs, a white-box CPE can be specified and an ROI analysis created. The real and troublesome question though is this: how well do operators know what VNFs their customers want?
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