Network functions virtualization and software-defined networking are getting a lot of attention these days. SNS Research in a new study estimates that SDN and network functions virtualization will be worth a whopping $4 billion next year alone. SNS Research expects to see compound annual growth of nearly 60 percent in this space over the next 6 years.

Service provides like the tier 1 telcos, their vendors, and SDN startups are all working to move these concepts forward, as are others with an interest in the data center. Media companies like Technology Marketing Corp., the publisher of this magazine, have launched events to help educate the industry on these important new trends. And the investment community is moving to get a piece of the action by placing their bets on some of the newcomers in this space.

So what is fueling all the excitement?

Some people like to talk about network functions virtualization and software-defined networking as a path to network transformation. And that, to me, is what it should be all about.

But Craig Farrell, vice president and CTO of the global telecom industry practice at IBM (News - Alert), said that every conversation he has with tier 1 carriers about these topics starts with these service providers discussing how much cheaper it will for them to run their networks on generic hardware. As a result, “making sure opex goes down is absolutely critical,” Farrell told the crowd at the recent Software Telco Congress.

Operators want to go as quickly as possible to NFV and SDN not because they have a bunch of new services they are ready to turn up, but rather because they want to save money, he said. And he added that they want to save without taking out their networks via outages.

Everybody knows telcos – and for that matter, just about every other kind of business – is keen to lower their operational costs. But the bottom line is that the revenue/cost model is broken for the traditional communications services operator and fixing it will require more comprehensive strategies. What’s required is a whole new way thinking about networks, and then putting that thinking into action. That change can initially be about making carriers more lean and mean, sure. But, in the end, it needs to be about business and network transformation that enables these companies to monetize their assets.

Steve Gleave, senior vice president of marketing at Metaswitch, who also spoke at Software Telco Congress, said the top carriers are already aware of this reality, as indicated by their move to come together to write a white paper and form a network functions virtualization group within ETSI (News - Alert). He added that 25 operators are now in that group.

So will addressing this reality entail?

Becoming a software telco, Gleave explained, entails transformation of your architecture and how you do business; embracing a programmable network that includes a rich set of APIs across layers; a new posture of agility, meaning the ability to churn out new releases every couple of months and an understanding that this transformation is a business necessity.

Paul Miller, GENBAND’s (News - Alert) vice president of technology and strategy, who also spoke at Software Telco Congress, commented: “The virualization of network functions is only a preliminary step toward the modernization of today’s telecommunications network. If network operators are to realize the full opex, capex and go-to-market potential of NFV they must incorporate advanced concepts of cloud and SDN, including elastic scalability, orchestration, dynamic service creation, and scalable hardware resources into their network evolution strategies.”

NFV rose to prominence in industry discussions follow the formation of the ETSI Network Functions Virtualization Industry Specification Group, to which Metaswitch’s Gleave refers above. AT&T, BT Group (News - Alert), Deutsche Telekom, Orange, Telecom Italia, Telefonica and Verizon drove the creation of this ETSI group, which came together a year ago November and has seen many companies join the charge since. The key goals of the NFV Working Group are to reduce equipment costs and power consumption, improve time to market, enable the availability of multiple applications on a single network appliance with the multi-version and multi-tenancy capabilities and encourage a more dynamic ecosystem through the development and use of software-only solutions.

Definitions of SDN vary, but most agree that it involves the use of the OpenFlow protocol and features an architecture consisting of an application layer, a physical network layer, and an SDN controller, which removes the control plane from the network hardare and runs it as software.