5G core (5GC) network marks the first ‘G’ that paves the way for CSPs to operate solely in the software layer. Cloud-native EPC functions and 5GC are key drivers for new telecom value creation. With the ongoing adoption of cloudified packet core networks, it is the first time the industry has relied on the core network to introduce something above and beyond enhanced mobile broadband (eMBB). According to a new report from global technology intelligence firm ABI Research, cloud packet core revenue will grow from US$11 billion in 2022 to US$16 billion in 2027.

In a modular and increasingly disaggregated ecosystem characterized by ‘vertical’ and ‘horizontal’ openness, technology choices for software, hardware, and services that underpin packet core buildouts are fundamental for BT, Orange, Telefónica, and Vodafone, among other CSPs, to expand existing MBB business and explore new business opportunities. Global technology intelligence firm ABI Research forecasts that, for MBB, core network application software is expected to grow from US$4.8 billion in 2022 to US$6.6 billion in 2027 at a Compound Annual Growth Rate (CAGR) of 6%.

“Today, much of the traffic going through the packet core is handled via physical network elements. With a growing 5G subscriber base and ongoing adoption of 5GC, the expectation is that 4G traffic shifts to 5G networks,” explains Don Alusha, 5G Core and Edge Networks Senior Analyst at ABI Research. “That, in addition to a rapid proliferation of software-fueled advances, means that today’s classic model for packet core equipment sales will likely take a different structure tomorrow.” What drives that point home is that hardware sales for packet core networks are expected to reach US$3.9 billion in 2027, not a significant growth from the current market valued at US$3.5 billion in 2022. With an ongoing cloudification of packet core networks, the commercial imperative for vendors like Cisco, HPE, and Juniper, among others, is stark: depart from a finite supply of integrated equipment to models based on software where the supply is essentially infinite.

Further, new value stands to be created in professional services. ABI Research forecasts that packet core services are expected to grow from US$3 billion in 2022 to US$5.2 billion in 2027 at a CAGR of 12%. “There is a growing market for services to help CSPs manage 5G rollouts driven by hardware and software separation, multi-vendor stacks, and expanded business scope drive. In that order. With 3G and 4G, packet core services revolve around one supplier providing their own software and hardware in an integrated fashion to ensure feature alignment, performance, and lifecycle management,” says Alusha. But going forward, with cloud packet core, the industry structure stands to be horizontally stratified. So, the supplier of the future will need to aid CSPs in all aspects of technology - from defining network architecture to managing workloads to building applications potentially coming from diverse suppliers.

The rules of buying and selling packet core are changing. How suppliers build products, drive revenue, the services they offer, and what they do to succeed in an increasingly cloudified ecosystem are all on the table. “For the next few years, the likes of Cisco, HPE, and Juniper must execute a ‘do both' model. They need to run the current product playbook and layer in a new software-based selling strategy in line with new economic realities, Alusha advises. Ultimately, suppliers must help, not sell. Helping will sell, but selling will not help. Helping requires strong system integration and services capabilities. In addition, the market is becoming more complex and riskier. Success will go to the fittest - not necessarily the biggest -because “bigness” is weakened by commoditization. Innovation in the process - how things get done internally - will be as important as innovation in packet core products that vendors sell,” Alusha concludes.

These findings are from ABI Research’s Network Cloud Infrastructure market data report. This report is part of the company’s 5G Core & Edge Networks research service, which includes research, data, and analyst insights. Based on extensive primary interviews, Application Analysis reports present an in-depth analysis of key market trends and factors for a specific technology.