SD-WAN supplier Cato Networks is set on carving out a corner of the SD-WAN market in competition with major telcos -- and the company is not alone.

While many SD-WAN suppliers such as VeloCloud Networks Inc. or Versa Networks have announced partnerships with major telcos, such as AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), respectively, Cato Networks delivers SD-WAN -- in addition to features such as cloud-based security and mobile access -- via its own private global Cato Cloud Network and partners with distributors, master agents, ISPs and resellers. Cato's competitor Aryaka also delivers SD-WAN on its own private global network and operates on a 100% channel model.

"I would probably categorize both Aryaka and Cato into the managed SD-WAN category so they would compete with the AT&T and MetTel's of the world rather than a Cisco/Viptela or a VeloCloud directly," says Roopa Honnachari, industry director for Frost & Sullivan.

VP of Marketing Yishay Yovel calls Cato the "un-carrier" and says the SD-WAN supplier is "competing more and more with established telcos... could be an Aryaka but also could be British Telecom, sometimes AT&T." Yovel says Cato now has 39 PoPs, up from 25 PoPs in August and has achieved cirtical mass to address the majority of customer needs, such as addressing performance and latency issues.

Competitor Aryaka has nearly 700 enterprise customers, brought in $26 million in Q3 and was ranked second for SD-WAN suppliers with 18% market share in IHS Markit's 3Q17 report. Frost & Sullivan's Honnachari says with Aryaka, customers are essentially buying the network as a service, bundled with SD-WAN and WAN optimizing functionality. (See Aryaka CMO Sets Sights on IPO in 2019.)

Cato isn't disclosing earnings, but Yovel says the supplier's average deal size increased 4x over 2017 and it doubled the number of customer contracts each quarter last year. Cato has raised also $70 million from Greylock Partners, in addition to investors Aspect Ventures, Singtel Innov8 and USVP. Yovel says Cato has hundreds of enterprise customers, primarily mid-market customers in the manufacturing and construction verticals with up to 50 branch sites. (See Cato Networks Surges in 2017.)

"At the end of the day, it's not everyone, there are still a lot of customers that want 100% managed service, don't want to touch anything, etc. so in those cases a customer will go with a legacy telco," he adds. "But we're going upmarket, which means more customers are larger, have complex networks and had carrier relationships for many years. SD-WAN is causing -- generally in the market, not specific to Cato -- is a rethinking of the carrier relationship."

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In addition to competition from players like Aryaka and Cato, Frost & Sullivan's Honnachari says major telcos are also facing growing competition from the cable MSOs which have launched their own hybrid SD-WAN services and have strong Ethernet and Internet footprints, in addition to competition from SD-WAN vendors doing direct sales to enterprises. Comcast Corp. (Nasdaq: CMCSA, CMCSK) partnered with Versa for its SD-WAN offering last May, and Charter's Spectrum Enterprise announced its Hybrid SD-WAN platform in November (See Will SD-WANs Spark Cable Competition? and Cable Eyes SD-WAN to Boost Business Services.)

Cliff Grossner, senior research director and advisor for the cloud and data center research practice for IHS Markit, says SD-WAN was a $400 million market in 2017 and is expected to double in 2018. Grossner adds, "there's a good proportion of the market looking for this kind of managed SD-WAN bundled in global connectivity" -- an SD-WAN model where the likes of Aryaka, Cato, Tata Communications and Spectrum Enterprise are players.

Grossner explains that as traditional service providers deploy NFV in their networks, they're looking to vendors like Silver Peak Systems Inc. and Versa for SD-WAN technology on a VNF that can be integrated in their network and run alongside other VNFs -- such as firewalls or WAN optimization technology on -- uCPE equipment. While Grossner says this SD-WAN consumption model is still very nascent, it's forecasted to be quite significant by 2021.

For traditional telcos looking to gain more leverage in the competitive SD-WAN market, "Speed will be of the essence for them to get SD-WAN rolled out and integrated within their network, I think that's where they have the most strength," says Grossner. "They'll then be able to offer that as a service alongside others and it will be an integrated stack, not separate devices. That makes a powerful value proposition for them."

— Kelsey Kusterer Ziser, Senior Editor, Light Reading