We forecast that the total IMS market (wireline + wireless) will resume stronger growth in 2019, and that the market will grow by a compounded annual growth rate (CAGR) of 14% through 2022. Market growth continues to be driven by the conversion of TDM voice subscriptions to VoIP.  For wireless services, this conversion is the transition of 2G/3G voice to VoLTE. We estimate that approximately three billion new VoLTE subscribers will need to be added to networks in the coming years. For wireline subscriptions, this conversion will require to transition away from POTS and T1/E1 services to voice-over-broadband and hosted enterprise and unified communications services. Growth in wireline IMS will be tepid relative to the wireless/VoLTE market.

The market is also at the cusp of a generational transition in architecture. In 2017, physical network functions accounted nearly the entirety of all market revenue.

However, nearly all operators are planning on transitioning their networks to software-based virtual or cloud architectures and we expect that in 2022 just 38% of IMS revenues will be related to physical network functions with the remainder being virtual- or cloud-based. Virtual network functions (VNF) are software-based network functions that run on top of a virtual machine (VM) or hypervisor. Cloud network functions are VNF with the added functionality of a VNF manager and/or orchestration or MANO functionality that enables service chaining and elastic demand. We believe that the market for VNF-only solutions will be largely ephemeral and that the vast majority of the market will be cloud-based in the coming years. Much of this conversion to cloud will be well beyond the forecast horizon of 2022.