The Hidden Costs of relying on Telco-Delivered Networks

In a world with more connected devices than ever before, where the cloud powers everything from communication to security, enterprise network bandwidth requirements are at an all-time high. International bandwidth usage in the past five years alone has seen a compound average growth rate of 33% [1].

Having successfully serviced their network and connectivity needs in the past, enterprises continue to turn to telecommunications providers for network solutions that leverage their private infrastructure, extensive reach, and ‘all-in-one’ approach. However, in the era of cloud ubiquity and rapidly evolving network requirements, the value that traditional telcos offer enterprises is obsolete.

With disruptive players offering more flexible solutions at competitive prices, enterprises must ask themselves if telcos can adequately service their evolving business needs now and into the future.

As part of this, IT leaders must take a fresh look at telco-delivered networks through a wider lens to uncover associated hidden costs that can emerge over time. These hidden costs stem from four key areas: rapidly changing business requirements, restrictive technology and commercial lock-ins, add-ons to fill gaps, and limited managed services portfolios on the telcos’ part.

Telcos inability to keep up with rapidly changing business requirements

According to Gartner, this year alone, global end-user spending on public cloud services will grow by 21.7%, from $491 billion in 2022 to $597.3 billion [2]. And by 2025, an estimated 51% of IT spending in application software, infrastructure software, business process services, and system infrastructure markets will be moving from traditional on-premises data centers to the public cloud [3]. This shifting center of gravity for enterprise WANs will require more flexibility when it comes to bandwidth options — something telcos just cannot deliver with their standard deal structures.

Secondly, it isn’t just ‘where’ business happens that is changing, ‘how’ business works has also evolved. Enterprises are more dispersed than ever, increasing the need for digital connection, collaboration, and communication. This puts pressure on businesses to fine-tune their network connectivity and security and adopt networking technology like Software-Defined Wide Area Networks (SD-WAN) or Secure Access Service Edge (SASE), which are not the typical domain of traditional telcos.

Relying on a telco-led approach makes it challenging for enterprises to globally connect and scale their almost entirely cloud-based ecosystem of platforms, applications, and users. It also makes it hard to optimize from a cost and performance perspective.

Restrictive commercial lock-ins that lock new technologies out

Naturally, most companies procure enterprise network solutions on three to five-year contracts. However, being locked into lengthy telco contracts can prove quite costly as service agreements can become quickly outdated in a rapidly evolving digital landscape. While this service model worked well for traditional networks with predictable traffic flows and a limited need for internet connectivity, the same cannot be said for today’s cloud-centric business environments.

Increasing bandwidth requirements means that long-term lock-in contracts can severely reduce the enterprise’s ability to adapt to changing market demands. Bandwidth requirements can also be unpredictable, making it nearly impossible to forecast usage requirements over a multi-year period, making long-term contracts even less attractive for growing businesses.

Additionally, what used to give telcos the upper hand in negotiations — a closed, high-performance private global network — is no longer appealing to enterprises. Constantly improving Internet connectivity technologies have become a much more viable option when compared to traditional leased line circuits for almost all branch office requirements.

It is still possible to procure SD-WAN and internet-based access from telco providers, but the costs can be 50% to 60% higher than telco-independent providers.

Costly add-ons to augment capability gaps

The viability of any enterprise network and security solution is contingent upon its ability to respond to unknown future needs and requirements. Unfortunately, when enterprises are locked into long-term and inflexible telco contracts, they find themselves facing a cost optimization predicament.

That is, when an enterprise approaches their telco or ISP provider about new capabilities that aren’t covered in the service level agreement (SLA) they might get charged a premium for it. Here, an enterprise has two choices. They can either acquire these additional services from their existing telco/ISP provider at a premium cost and maintain operational simplicity. Alternatively, they can onboard a new provider — in addition to their existing provider whom they are locked in with as they maintain the rest of their network needs — and end up fragmenting their IT solution, increasing overheads and network complexity.

This is not a one-off scenario either, but rather a domino effect, as business requirements will inevitably continue to evolve leading enterprises to constantly question the cost versus benefit equation of the telco-dependent approach.

Limited portfolio of managed services

When it comes to managed services, enterprises can either agree upon managed or unmanaged services with their telco provider. The unmanaged route is only recommended for well-resourced businesses with well-equipped IT teams, as they often have no SLAs or support and can prove much more hands-on for the enterprise.

And while managed services offered by telcos can vary, it is not a telco’s core offering and remains relative to the margins they make on the underlying backbone infrastructure.

In summary, while the familiarity and comfort of telcos can be enticing for enterprises seeking new network solutions, several hidden costs can lead to increased expenditure, lack of agility, and increased operational complexity.

Enterprises should consider a telco-independent approach for their networking requirements. Not only does telco independence lead to reduced costs, but it can also provide greater flexibility, deeper customizability, and added value through additional technical capabilities and more seamless service delivery.

Get in touch with us to explore how a telco-independent approach can deliver the business outcomes you want.