What to Expect in 2023
LB3 and TC2 have compiled a list of ICT topics that we believe will have a significant impact on enterprise customers in 2023. We will explore the following areas in greater detail on our Staying Connected podcast series, with episodes dedicated to each topic. We hope you will tune in.
1. Gridlock in Washington, D.C.: The Consequences of Regulatory Inaction for Enterprise ICT Customers
Washington, D.C. is currently a hot mess of bitter partisanship and intractable gridlock. It will get even worse in 2023. The screaming headlines and cable news leads about each day’s outrage or scandal don’t usually include issues that affect information and communications technology sourcing—after all, those may only appeal to a niche audience that tunes into podcasts like our Staying Connected. But the same, widely covered dysfunction at the highest levels of our government seeps into the less visible corners of policymaking that directly affects things ICT professionals do care about, like market competition, prices for ICT services, the effective restraint of service providers’ monopolistic behaviors, network security, privacy, and controlling the exploding cost of regulatory support programs such as the Universal Service Fund. Expect the big regulatory story of 2023 to be regulatory inaction. Enterprises need to understand the underlying issues and consequences of such inaction, advocate effectively so that policymakers hear business customers’ voices, and act shrewdly to create their own competitive marketplaces for the services they buy.
2. Universal Service Fund Assessments Continue to Rise but Face Serious Court Challenges
The federal Universal Service Fund spends over $8 billion annually primarily to subsidize broadband service for rural areas, lower-income populations, schools and libraries, and rural hospitals, all of which is funded by assessments on certain telecommunications services that business and residential customers purchase. Since its inception in the mid-1990s, the system for funding universal service was unstable, assessing the revenues carriers earn for services that were dramatically declining (such as voice minutes) and failing to assess the services that consumers were rapidly adopting (such as broadband). As a result, the USF assessment has exploded over the last 20 years—from less than 5% when the system was conceived to over 30% today—imposing a huge cost on end users. With decades of indifference from Washington policymakers to adopt simple changes to fix the system, consumers have gone to three separate federal appeals courts for relief, filing separate but similar challenges alleging that the entire system of funding USF is unconstitutional. Such lawsuits would have been considered serious long shots in the recent past, but the magnitude of the funding crisis, the stubborn unwillingness of policymakers to do anything to fix the problem, and a change in thinking among the federal judiciary about previously unpopular legal theories give these cases a much greater chance of succeeding. If they do, they will upend the entire universal funding system with no obvious substitute or replacement.
3. BYOD Just Got More Complicated, but Potentially More Secure
The National Institute for Standards and Technology (NIST) has circulated the second draft of a 280-page advisory paper on mobile device security and privacy practices in a BYOD environment. The document, when finalized, would be non-binding, but would quickly become the best practice bible for all enterprises that allow BYOD for their employees. Certain government agencies and many companies are already banning the use of TikTok and other high-risk apps from employees’ mobile devices. This is a harbinger of things to come for mobile services, and organizations will be forced to think long and hard about whether BYOD makes sense, given all the risks it introduces into the enterprise’s information ecosystem. If companies continue to embrace BYOD, they will need to accept the enhanced security and personal privacy protections needed to allow employees to use their own devices for work without undue risk of cyberattacks or unauthorized access to personal or proprietary information.
4. Fixed Wireless Gains Momentum for Home and Enterprise Customers
T-Mobile is marketing its 5G service as a substitute for fixed broadband service, targeted primarily at consumers, but the offering has caused quite a stir among incumbent residential broadband providers. Traditional fixed line providers see wireless carriers as viable threats, since they don’t have to lay any new cable or fiber to the home or to the office; installation of Fixed Wireless Access (“FWA”) is easy and cheap. FWA offerings may be the cost-effective answer to the loss of traditional POTS lines, which carriers are decommissioning, as well as a reliable and increasingly cost-effective modality to augment an enterprise’s access portfolio when using SD-WAN and other next-generation WAN platforms.
5. Dealing With Avaya’s Bankruptcy: Back and Forth … and Back Again
Avaya is a storied telecommunications technology company best known for its quality business communications hardware, software, and contact center solutions. Despite having more than 90,000 customers in over 190 countries, and receiving $600M in funding this summer, Avaya reportedly realized a significant reduction in revenue in the third quarter of 2022 (and as a result has installed new leadership). Having emerged from a Chapter 11 bankruptcy just five years ago, Avaya is likely to file for bankruptcy protection under Chapter 11 again in early 2023. Talks are underway for a restructuring and for successfully re-organizing and reprioritizing Avaya’s product lines. But will enterprise customers that are Avaya shops, or that are contemplating UCaaS solutions, want to take the risk that Avaya may stumble, and can Avaya rise like a phoenix again? We think Avaya’s re-tooled business model may ultimately be a winner, but it could be a bumpy road.
6. Vendors Have a Surcharge Addiction
Over the past several years, savvy enterprise customers have implemented a growing number of economically attractive alternatives to legacy telecom services (such as Teams, Zoom, SD-WAN), which have significantly cut into incumbent vendors’ profits. Perhaps coincidentally (perhaps not), in recent years we have also seen traditional vendors such as AT&T and Verizon invent new surcharges or increase pre-existing surcharges to supplement their diminishing service revenue. We saw this trend grow in 2022 and expect it to continue in 2023. A regulatory body sets the level of USF each quarter, but the vendors create and determine the amount of many other surcharges, including misleadingly labeled fees such as property tax assessments, administrative fees, carrier cost recovery, and federal “regulatory fees.” While the vendors admittedly have regulatory costs, there is no federal mandate to impose most of these discretionary fees on customers, and they are most certainly not taxes, per se. Rather, the vendors tack on these fees simply to enhance their revenues. Imposing discretionary surcharges and fees that (unlike actual governmental surcharges and taxes) vary by vendor makes cost control and price comparison challenging for enterprises. To make matters even more complex, the vendors can (and do) adjust these fees whenever they want, without customer consent, by changing their online service guides. Understanding these fees is critical for enterprise customers.
7. What a Recession Could Mean for Enterprise Deals
A global recession in 2023 is now considered likely, and that includes the U.S., although a U.S. recession is predicted to be shorter and milder than in the rest of the world. Regardless of its impact and duration, ICT vendors and their enterprise customers are already taking precautions, and these efforts are diametrically opposed. Vendors want more guaranteed sales and profits while taking fewer risks; customers are seeking flexibility to address changing circumstances with vendors while remaining free to adjust their operations to quickly changing circumstances. In this year of uncertainty, enterprise customers will need to be vigilant, quick-minded, and creative to address problems with their ICT vendors. These problems include ICT vendors vigorously resisting any reduction in their guaranteed revenue commitments (think minimum revenue or service term) and being slow and resistant to resolve billing disputes. We are already seeing trends in those directions. Enterprise customers must also balance new technology needs with changing employee demands, including hybrid work environments.
8. TEM is More Important Than Ever
Telecom Expense Management, or TEM, was once a nascent cottage industry that grew out of the notoriously complex and often inaccurate telecommunications billing that carriers delivered to enterprise customers. Today, TEM services have expanded to cover a broader range of spend categories and service offerings, including wireline transport, managed services, wireless, cloud, provisioning, audits, and much more. While customer complaints about their TEM providers are common, enterprises are learning how to work with their TEM providers and asking them to do more to keep ICT expenses in check. In 2023, TEM customers will rely more heavily on the enhanced services TEM companies can provide but increasingly expect better integration of network management platforms and inventory databases.
- You can listen to the related podcast here.