2023's Emergent Trends in Enterprise Telecom

Dennis Thankachan of Lightyear explains the trends and shifting priorities in enterprise telecom purchasing they discovered in 2023.

2023 has presented enterprises with quite the set of hurdles and opportunities to manage through: inflation, interest rate hikes, innovation in AI, supply chain ups and downs, and so much more. At Lightyear, we observe firsthand how macro trends and new technologies directly impact enterprise technology purchasing decisions because our company helps enterprises optimize their telecom procurement with software. Here, I’ll run through a few of the most salient trends we’ve observed this year around enterprise buying.

Network Procurement Shift from Expansion to Cost Optimization

In 2021/early 2022, a majority of network procurement requests coming through Lightyear’s platform were around network or facilities expansion, along with a continuation of COVID-19-related operational changes. Naturally, in an environment where capital was freely available and the economy was running hot, companies were expanding rapidly.

Coinciding with changes in interest rates, inflation, and the global economic outlook, in mid-2022, enterprise procurement requests on our platform shifted heavily toward network consolidation and cost optimization among enterprise clients. Rather than buying new services, enterprises began scrutinizing network budgets to get rid of unnecessary services, accelerate technology changes that could cut costs, and rebid services where cost cuts appeared plausible.

Here are a few of the most common cost optimization trends we’ve observed within our user base:

Acceleration of Complex Cost-Saving Network Transformation Projects

Examples include shifting from an on-premises voice system to a cloud-based voice system or sunsetting an MPLS network in favor of SD-WAN overlay and internet connectivity underlay. These changes can reduce network costs, sometimes significantly, but also involve potentially gnarly implementations with many moving parts and sometimes many vendors. In an environment where costs mattered less, enterprises were more likely to avoid these technology changes.

Aggressive Cost Benchmarking, New Vendor Introductions, and Bulk Procurement

Enterprises are sharpening pencils on ideal cost benchmarks for network services (often utilizing target $ / Mbps) and utilizing a variety of procurement tactics to hit cost targets. We’ve seen enterprises become more willing to embrace new vendor MSAs to increase RFP competition and buying services in bulk to take advantage of potential discounts. Software tooling and datasets that can help enterprises accomplish these tasks have been en vogue.

Investment in Better Organization Aimed at Rationalizing Unnecessary Services or Capacity

Enterprises often utilize spreadsheets, internal systems, or sometimes nothing at all to track network services within their footprint, often leading to disorganization. These systems require manual input to stay on top of service details and can lead to renewal deadlines getting missed or continued payment for services that are no longer needed. We’ve seen a big enterprise push to get organized with more dynamic software with the objective of disconnecting unnecessary network services, reducing capacity where possible, and taking advantage of renewal optimizations.

Overall, in 2023 we’ve seen enterprise CIOs more willing than ever to embrace potential change to achieve cost savings. 

Going from SD-WAN 1.0 to SD-WAN 2.0

Enterprise SD-WAN conversions began in the early 2010s, coinciding with widespread availability of high-speed broadband, allowing enterprises to orchestrate site-to-site traffic over the public internet at much lower cost and higher flexibility. Over the course of the 2010s, enterprises that had generic WAN use cases mostly turned down MPLS networks in favor of commodity internet underlay and SD-WAN overlay. Today, we are most of the way through this SD-WAN transformation within the enterprise.

More recently, enterprises have seen their WAN needs change:

• Enterprises have seen the perimeters of their WAN shift to accommodate many more devices and endpoints, especially with the advent of remote work.
• Enterprise applications and data have shifted primarily from the premise to the cloud.
• There has been a significant shift in the cybersecurity threat landscape with a huge increase in potential surface area of attack.

Today, enterprises are re-evaluating their WANs, and seeking network topologies that align with these trends–vendors that have robust middle-mile networks, security offerings embedded within their SD-WAN offering (SASE), and more cloud-centric reporting and orchestration capabilities. There is a “new school” of SD-WAN vendors emerging that have built their businesses around the above needs, and we now see enterprises sunsetting SD-WAN “1.0” vendors in favor of this new breed of SD-WAN vendors. Although the first wave of SD-WAN transitions is mostly complete, this wave of SD-WAN conversions has only just begun.

Satellite’s Entry Into the Enterprise WAN

The first generation of satellite ISPs were not passable as primary, or even backup options, within enterprise WANs because reliability, latency, and speed were significant problems due to sheer distance traveled (from earth to satellite and back) and antenna technology utilized. In 2022, Starlink introduced low earth orbit (LEO) satellites with improved antenna technology that provided performance comparable to a terrestrial broadband connection, but with global reach. 

We are currently seeing a major uptick in requests to utilize Starlink as a primary or backup connectivity option in rural or underserved areas where high-speed broadband or dedicated fiber is unavailable. Previously, satellite options were not explored for these use cases. We’ve also seen a big push from ISPs to resell managed versions of Starlink, with enterprise level support options being offered alongside the baseline service.

From Public Cloud Back to Private Cloud

From the mid-2000s to today, enterprises have largely shifted data storage and compute from the premise to the public cloud, as the public cloud offered significant improvements in ease of use, flexibility, and ease of maintenance with lower risk of technology obsolescence. However, as public cloud utilization has grown, enterprises have observed that cost curves for public cloud utilization scale non-linearly, meaning the highest-usage enterprises often pay a significant premium to run things out of the public cloud. Also, the public cloud is best built for commodity compute and storage use cases but often doesn’t offer the flexibility required for highly customized or intensive workflows (today this is of most relevance to artificial intelligence).

As enterprises rationalize budgets in 2023 and emerging companies build infrastructure around AI, we’ve seen a push toward private cloud and hybrid cloud infrastructure relative to years past. When workloads can be run more cheaply in a private cloud instance, or significant customization or flexibility benefits a workload, private cloud is winning. Compliance and security posture are also easier to customize and document in a private cloud environment. In the long run, workloads will live where they operate most efficiently from a cost and performance perspective.

So, What’s Next?

COVID-19 prompted a wave of accelerated digitization, and the recent economic downturn appears to be prompting another wave of acceleration toward cost-saving digitization. Although macro circumstances are likely to continue to dominate enterprise decisions in 2024, it’ll be interesting to see how AI and other new technologies impact things.