Core Network Virtualization and the "Dumb Pipe" Reality

Virtualization and “dumb pipe” are related concepts and practices in core networks, just as applications and services now are logically separated from the transport and access networks. And both those trends illustrate where value is being created within the internet  ecosystem.

Today, owners of networks are virtualizing. Eventually, it is likely to be possible to federate across networks, for that very reason. So essentially, the commoditizing of physical infrastructure will increase.

“Virtualization implies that the control of services and networks can be accomplished outside the physical networks,” and separately from the bit transport layer, argues  Rick Talbot, Current Analysis principal analyst.

That applies initially to any single network, but eventually is likely to extend across multiple federated networks as well, where control lies outside any single transport network.

Network functions virtualization, for example, replaces embedded software in physical network elements across a range of appliances (firewall, packet core, broadband network gateways, customer premises equipment, network address translation, session border controller, provider edge routers), for example.  

“It is only a matter of time before most, if not all, of the specialized network elements and appliances are replaced with--or supplemented by--virtualized instances of themselves,” says Talbot.

There are analogies to this process of core network virtualization. Consider the generation of economic value within the internet ecosystem.

At the moment, perhaps 15 percent of value (measured as firm revenue) is claimed by internet access providers. In the future, that is likely to fall, if mostly because the rest of the ecosystem will have far-higher rates of growth.
To be sure, service providers want and need networks that are more flexible, cost less and also are more capable. Virtualization is one way to achieve those goals. But virtualization also tends to lay bare the growing “dumb pipe” role of networks. Even when networks are “smart,” that smartness is abstracted from the physical network.

At the same time, the separation of logical and physical functions of networks is happening both within the core transport network, within data centers, in access networks and consumer devices.

The obvious analogy is the separation of application supply and network access that is fundamental to all internet protocol networks: any lawful application can be reached and used by end users over an IP network so long as they have authorization to use the apps, irrespective of the IP network used for access.

Where access to communication services once was highly vertically integrated, it now is highly disaggregated. Today, most services and applications used by most consumers are owned by third parties, not the access service providers.

To be sure, access providers (cable, telco, satellite, fixed wireless) have revenue models based on a mix of owned applications (voice, messaging, video entertainment) and “dumb pipe” (internet access, both fixed and mobile) services.

But it is hard to avoid the notion that, over time, value is shifting away from the supply of physical connections to networks (access) and towards “over the top” applications and devices. That does not preclude access providers creating or owning OTT applications themselves.

That, in fact, is what Sling and DirecTV Now are all about; or why Verizon owns automobile application assets.

In a study by AT Kearney of the U.K. internet ecosystem, analysts estimated that internet access accounts for 35 percent of the U.K. Internet value chain revenues (16 percent of the total Internet ecosystem). Excluding the value of e-commerce, the internet ecosystem in 2010 already had apps and services claiming 65 percent of value.

The point is that virtualization is another example of the way networks are changing: as services and features have been abstracted from the network, now even the control and management of networks is being abstracted from the physical facilities.


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