Universal customer premises equipment (uCPE) is not a phrase that usually gets the blood pumping. While the idea of a single piece of hardware able to host any and every virtualized network function (VNF) has been – and remained – on the roadmap for years. As such, in 2019, Omdia recorded uCPE revenues of $11.7 million, only slightly higher than the $8.8 million in 2018, and $7.7 million in 2017. But this year's numbers suggest we may see a turn as uCPE-based services begin making it into customer premises.
This year Omdia expects uCPE to hit revenues of $27.4 million on unit sales on 27,000 uCPE unit sales. These units are split across small (4 CPU cores and below), medium (8 core boxes – the most popular box type), and large (generally 12-16 cores, though they can go higher). We expect this to more than triple to reach revenues of $93.5 million on unit sales of 99,000 in 2021 and reach $1.78 billion by 2024 on unit sales of 591,000.
What's behind this increase, and why will it continue to grow?
The answer to both questions is the enterprise adoption of SD-WAN. After years of not having a use case to drive it forward, uCPE finally has its service in shining armor. According to Omdia's 2018 Enterprise Network Services Survey, 34% of enterprises had at least begun PoCs (proofs of concept) with SD-WAN; in 2020 that number is now 56%.
By 2022 86% of enterprises expect to at least have an SD-WAN PoC in place, with 37% of enterprises expecting to have SD-WAN deployments across more than 25% of their footprint. As SD-WAN deployments scale up and become more ambitious, enterprises are increasingly looking to marry SD-WAN with additional services – particularly security.
Enter uCPE, which provides the platform that can host the SD-WAN solution, plus additional VNFs, firewalls, network assurance, WAN optimization, etc. on a single appliance. Several operators are already moving to offer uCPE as the platform for these SD-WAN first, multi-VNF, single box services, with encouraging signs that this will begin ramping up in 2021. uCPE vendor Silicom (among others) can be seen as a beneficiary of this strategic move, by its announcement in October that it has recently signed "three new uCPE device wins with top-tier telcos, representing a combined revenue potential of approximately $10 million per year once steady-state delivery levels are reached." These deals came in part because of Silicom's relationship with an SD-WAN software vendor.
Arming up and edging out
SD-WAN is not the only feather in uCPE's cap that offers hope for increased scale in 2021. In August, Arm, Telco Systems and Vodafone announced the successful conclusion of an enterprise PoC using Arm-based uCPEs for network services. Key deliverables for Vodafone were solution cost, carbon footprint, and performance. The PoC managed to deliver a small 4-core uCPE unit under $300, two-thirds the average cost that Omdia typically expects for a small uCPE unit ($459) in 2020. On this metric alone, we assume these partners will be looking to scale this solution in 2021 (the unit also scored well on carbon footprint and performance).
A limiting factor will be the number of VNFs optimized for Arm-based uCPE solutions, which is currently only a handful. If we see more operators follow Vodafone's lead with more PoCs in 2021, we could see Arm-based uCPEs beginning to have significant effects on service provider network service strategies in 2022.
A cheaper solution is just one reason for an uptick in uCPE-based services in 2021. Also adding to the momentum is the range of network services, particularly at the edge. Network edge services for operators are largely a platform play. Where networks need to deploy hardware at the edge, or in the customer premises, they need it to be able to host anything and everything in order to make a success of edge computing.
The range of associated applications for each vertical industry – from manufacturing to healthcare to retail and entertainment – is incredibly broad. To cater to these opportunities, operators need a hardware platform for on-premises workloads that can host as many of these enterprise use cases as possible, and deliver the required level of flexibility and customization. uCPE can fill this gap, and already has firm proponents, including large network operators like Lumen and Verizon.
Maybe uCPE won't be "universal" in 2021, with expected revenues of $93.5 million across the industry. However, my prediction is that by the end of 2021 we can expect many more operators to have included uCPE in their network services arsenal, and to have signed agreements with suppliers to expand the number of their hardware and VNF suppliers, ready to launch increased options for their enterprise customers in 2022.
— Chris Silberberg, Research Analyst, Carrier Network Software, Omdia