Long Term Evolution (LTE) core network activity is heating up as many vendors look to seize a share of the next-generation packet core market, according to a new Heavy Reading report.

The pursuit of the Evolved Packet Core (EPC) is picking up pace now because of the strategic significance of these packet core products for many vendors, and not necessarily because of the potential market size. The packet core will be among the fastest growing segments in wireless infrastructure, growing at a rate of 10 percent per year for the next five years, and will be worth $2 billion in 2012, according to the report, "Evolved Packet Core for LTE: Market Forecast & Competitive Analysis."

Ericsson AB (Nasdaq: ERIC) and Nokia Siemens Networks are the undisputed market leaders in the packet core market. In 2008, the 3GPP packet core market was worth $1.2 billion, and these two vendors had nearly 70 percent of the market, according to Heavy Reading.

Hot on the leaders' heels are Huawei Technologies Co. Ltd. and Starent Networks Corp. (Nasdaq: STAR) with the next-biggest market shares. These vendors have gained share recently by "mopping up the footprint from defunct vendors such as Nortel Networks Ltd. or through dissolution of partnerships (e.g., Cisco and Siemens)," writes the report's author, senior analyst Gabriel Brown.

And to show how hot the packet core market is now, Cisco Systems Inc. (Nasdaq: CSCO) bought Starent for $2.9 billion in October. (See Cisco to Buy Starent for $2.9B and Cisco/Starent Deal Hurts Juniper.)

Behind these four suppliers, there is a group of seven next-gen packet core challengers. With Ericsson and Nokia Siemens commanding nearly 70 percent of the packet core market, the reason so many companies are chasing around 30 percent of a market that's worth $1.5 billion today is that these products can lead to sales of other products.

"The pull-through factor on the surrounding network elements is significant, and the role the packet core vendor often plays in helping the operator define the wider network architecture is also an opportunity to position related products," notes Brown in the report. (See Core Network Challenges LTE Vendors.)

The demands for the new LTE packet core are weighty, indeed. According to the report, "the packet core must support carrier-grade voice, differentiated services using end-to-end QoS, vastly greater throughput per subscriber, ultra-low latency, and much better control-plane scaleability due to the flatter network architecture and changing application load."

Here, according to Heavy Reading, is a snapshot of the next-gen packet core challengers:

• Alcatel-Lucent (NYSE: ALU) is singled out among the challengers as "having the best chance due to the combination of its size and its position in IP networking and wireless." The vendor's 7750 edge router is the foundation for the serving gateway and Packet Data Network (PDN) gateway. The Mobility Management Element (MME) is based on an ATCA platform. (See AlcaLu Mines IP Smarts for LTE Core.)

• Hitachi Ltd. (NYSE: HIT; Paris: PHA) bought Nortel's EPC assets for $10 million in October. The two companies had developed an MME for KDDI Corp. in Japan. (See Hitachi Takes Nortel's LTE Packet Core, Nortel Snares LTE Core Deal, and Hitachi Does LTE R&D in Dallas.)

• Juniper Networks Inc. (NYSE: JNPR) recently announced that it will develop its own packet core products based on its MX 3G routers and linecards. (See Juniper Looks Inward for Wireless and Juniper's Wireless Worry.)

• Motorola Inc. (NYSE: MOT) has developed the MME in-house. For packet gateways, it has a partnership with Starent, although it is not yet clear how that relationship will be affected by Cisco's acquisition of Starent. "Motorola's decision to focus on MME and not invest in packet gateways shows an astute understanding of market dynamics."

• NEC Corp. (Tokyo: 6701) supplies packet core products in its home market. With an EPC portfolio based on a new ATCA platform, the vendor is looking to compete more internationally. (See KDDI Picks Challengers for LTE Deployment.)

• Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) made its mark in the packet core market with the acquisition of WiChorus in October for $180 million. The move is interesting because, according to the report, "the strategic basis for this deal appears to be in integrating and aligning packet core with packet transport infrastructure to a greater level than other suppliers propose." (See Core Blimey! Tellabs Buys WiChorus.)

• ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) is developing a new product line based on edge router and ATCA hardware platforms, which will position the company for the transition from 3G to LTE.

— Michelle Donegan, European Editor, Unstrung

Dave Williams
Sales Director, Heavy Reading
858-485-8870
dave.williams@heavyreading.com