Policy + charging

Policy & DPI: $1B Spree, But No Picnic for Vendors

It's not quite a bonanza yet, but the policy control and deep packet inspection (DPI) market is big and it's going to get quite a bigger in the years ahead, making it one of the industry's most significant current opportunities.

According to our new Policy & DPI Market Tracker, just published, the market for policy management (e.g., policy servers based on the PCRF standard) and DPI gear (now used mainly for policy-related tasks) topped $1 billion for the first time in 2011, growing 35 percent over the course of the year.

We expect it to continue to grow at a similar pace in 2012, and although growth will gradually slow, the market will be worth a whopping $2.7 billion by 2016 – and it will still be growing.

In earlier years, the main beneficiaries were specialist vendors, mostly startups, but the size of the opportunity hasn't been lost on the bigger actors, and most have upped their game in this area, either through big internal investment programs (e.g., Alcatel-Lucent) or acquisition (e.g., Amdocs). That is paying off: At least on the policy server side of the market, the major vendors, led by Ericsson and Huawei, are gaining ground at the expense of the specialists, and now constitute more than half that segment by value.

Almost everyone is benefiting to some degree, including DPI vendors such as Allot and Procera. But grabbing a piece of the policy action is not just about the money: Policy management is fast becoming a strategic priority for network operators, and that means that major vendors must make it a priority as well. In fact, in a survey we ran with operators in 2011, 41 percent said policy was already "mission-critical," while most of the rest said it would be within two years.

What's driving the boom?
Overwhelmingly, our Tracker shows, the boom is driven by mobile broadband and by the challenges and opportunities that this has created. In an environment where demand seems to be limitless and the mechanisms to control that demand can seem crude and unfair to customers, there's a compelling need to find the best possible ways to manage data traffic growth.

This means that the way policy management is used is changing, and the number of policy use cases is growing rapidly. Innovation is mainly around service differentiation, especially in emerging markets – using policy to build a wider range of packages and options that meet the many different needs of users. So policy decisions may be triggered by the application running, the time of day, the level of congestion, subscriber preferences, tiers and usage, device, location – or all of these together.

The main consequence of that is that policy deployments are getting bigger and more complex, both in terms of the number of policies and sessions handled, and in terms of the number of network and BSS/OSS elements connected to the policy server.

That in turn gives a pretty good clue to the kind of challenges that now face vendors. For instance, although there are 3GPP standards to connect policy servers to subscriber information and charging systems, they are far from providing the whole solution. Our operator survey found plenty of disgruntlement about the gap between hype and reality in areas such as interoperability, as well as in other areas, such as ease of policy creation.

One consequence of these difficulties is that telco spend on systems integration and other professional services work in the policy space is growing – but vendors benefiting from that revenue today may not benefit tomorrow. One important trend picked up by our Tracker is that many operators that have already installed policy gear are looking afresh at suppliers, and in some cases replacing them; reducing the ongoing cost of integration and policy creation is one motivation here.

That, then, is the challenge ahead for vendors, and not all will rise to it. The one thing we can say with some confidence is that further acquisitions and mergers are a certainty in such a dynamic but tricky sector.

— Graham Finnie, Chief Analyst, Heavy Reading

For more information about Heavy Reading's "Policy & DPI Market Tracker," please contact:

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