Following the COVID-19 pandemic, enterprises maintain their ambition to cut actual costs, reducing like-for-like spend. By now, they are increasingly also factoring in softer cost savings for process improvements and keeping inventories up-to-date. telecom expense management guide
Telecom expense management services enable enterprises’ IT, procurement and finance departments to order, provision, support and manage costs of corporate telecommunications, associated IT services and their inventories. (These may include fixed and mobile telephony and data, cloud licenses, unified communications as a service [UCaaS] licenses, and Internet of Things [IoT] connectivity.) TEM services also include business intelligence (BI) and reporting suitable for supporting C-level strategic decision making. Gartner’s TEM coverage focuses on SaaS-based applications and platforms, managed services, and associated professional services.
TEM providers are evolving their offerings as enterprises’ consumption (especially of fixed and mobile data services) grows, and providers now incorporate expense management of other adjacent services and communications-related asset tracking. These offerings include inventory tracking of cloud/consumption-based services; other IT-related services, such as UCaaS; and IoT expense management.
To cut and control costs and unproductive duplication of feature availability to end users, enterprises want to effectively manage this complexity and its associated costs. Third-party TEM providers are becoming a cost-effective way to secure needed program management capabilities. Therefore, enterprises look to TEM providers with the capability areas illustrated in Figure 1.
Figure 1. The TEM Stack
Market Direction
The use of enterprise communications and IT services continues to grow, driven by the accelerated video usage spurred by the COVID-19 pandemic. This has created new consumption patterns (where voice channels such as Microsoft Teams are increasingly used over mobile voice in addition to traditional fixed voice), which are marked by increased use of cloud-based services and growing deployments of IoT services. These and other technology services support and enable enterprises on their journey toward digitization, and increasingly extending to transformation. Enterprises use TEM services to optimize and manage the costs for these services.
Some enterprises are looking to TEM providers to manage a broader set of communications-related IT and cloud-based services. Other enterprises seek TEM providers that provide full life cycle management, particularly of mobile assets (see Figure 2). The impact of data analytics for more effective cost control, cost management and cost avoidance will continue to increase in importance, along with the quality of the service delivery.
Figure 2. Telecom Expense Management Evolution
Key trends in TEM:
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The most common engagement model is a fully managed and outsourced TEM service delivered based on cloud-based TEM applications. The driver remains the pressure placed on enterprise resources and governance to control budgets and services associated with managing communications, cloud-based applications and infrastructure and now the fast-growing deployments of IoT services. The many organizations that previously managed such technology expenses internally find there are now even more frequent changes to an increasingly complex environment (underpinned by software defined networking and “post-COVID-19” hybrid working) while costs remain under scrutiny. The consequence is that internal enterprise entities are challenged to manage costs efficiently, leading to the use of TEM services.
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Enterprises continue to show exploratory interest in vendors’ ability to build and maintain inventories, and track service consumption and costs, ideally from a single platform for a more consistent service experience. Those costs may be associated with UCaaS, infrastructure as a service (IaaS), platform as a service (PaaS), contact center as a service (CCaaS), communications platform as a service (CPaaS), storage, IoT and other IT assets, in addition to fixed and mobile. Nearly all vendors in this report now also offer the ability to manage cloud-related expenses.
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The opportunity to manage communication spend is also growing into new segments. By 2025, to enhance agility and support for cloud applications, 65% of enterprises will have implemented software-defined wide-area networks (SD-WANs) compared with about 40% in 2021. This leads to increased monitoring and management requirements for enterprises, adding to an ever-more complex environment to manage.
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Advanced data analytics and intelligence from TEM systems are being used to make top-down and bottom-up decisions by context (for example, by sites, location or business units) for spending, inventory and usage in easy, single-view and multidimensional formats. Deeper analytical capabilities, including cost predictability, forecasting and technology simulations, are expected from platforms to generate more detailed analytics. The data is used for tactical and strategic business decisions for communications and associated IT investments, budgets, inventory, future service provider contract negotiations, and to enhance processes within different contexts.
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TEM providers have pursued further investments in platform automation to strengthen their platforms’ performance in complex environments in the form of robotic process automation (RPA). Enhancements continue for automated invoices, workflow links, vendor integration, inventory count and data processing in cases where standardized APIs or other methods aren’t available and manual efforts are too slow and can’t be scaled. More cognitive artificial intelligence (AI) abilities are added as AI and advanced data requirements evolve.
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Some enterprises have begun to expect preintegrated capabilities with leading IT service management (ITSM), general ledger (GL), accounts payable (AP), ERP and unified endpoint management (UEM) systems. This will enable seamless workflows and data flow, internal chargeback allocations, and inventory classification by user, person, estate or even individual.
Market Analysis telecom expense management guide
Large domestic, regional and multinational enterprises are investing in TEM services. A key reason is that many enterprises struggle to control their communications service spend, which is forecast to represent 36% of global end-user spending on IT products and services in 2021 of just over $4 trillion.
The TEM market has been mature and commoditized for a long time, particularly in the U.S. Technical or functional differentiation between vendors can be limited and may even seem indistinguishable. This leads to a strong focus on price competition, which has intensified in 2021. The differentiation that exists tends to be in areas such as geographic reach and coverage but the main differentiating aspect is the service quality. This is evidenced by processes and methodologies that deliver consistency, reliability and continued efforts at managing the estate effectively.
Organizations aim to have clarity around costs and consumption of services for efficiency and optimization; by employing a TEM vendor, enterprises aim to save on internal resources while obtaining all this.
To improve on the likelihood of a successful engagement, it is important to conduct some due diligence to obtain clarity around not just the “how” but also the “when.” This is to avoid pitfalls that may stem from differences in cultural and fragmented IT/telecom procurement environments that can lead to long transition times, lower-than-expected total cost of ownership (TCO) reductions and hidden costs.
To reduce deployment challenges, enterprises should define roles and responsibilities on each side (internal to the organization and externally with the vendor) through a governance model covered in the contract. They should also clarify implementation schedules and the vendor’s ability to provide services needed in additional regions/locations and across different technology sets (as required). Enterprises should tie these into SLAs with target metrics. This will provide an understanding of how the vendor can drive efficiencies at scale and in complex landscapes.
Enterprise Requirements Vary by Size and Scope
Inquiries from large multinational corporations (MNCs) or large enterprises with more than $1 billion in revenue generated the majority of Gartner’s end-user inquiries related to TEM in the 12 months prior to October 2021. While a mature market, there are still many “greenfield” deployments. The expense management requirements from these organizations are typically very challenging not only because of the fragmented vendor landscape, but also because of the added complexity driven by local taxation regimes and internal chargeback complications that often characterize MNCs.
For enterprises with international requirements, there are a few providers with a wide geographic presence of their own, whereas others partner with third parties to cover a technical requirement or to complement geographic reach. For organizations with a multicountry requirement, there are now more providers to choose from than in 2020.
Interest in TEM continues to also increase from midsize enterprises. They are looking for logistics support, to control costs and associated usage, and to enhance processes around their growing number of particularly consumption-based services. Note 4 provides examples of smaller TEM providers, mobile-only TEM providers, system integrators and IT outsourcers (ITOs) active in TEM.
Procurement Practices and Pricing Models — Managed Services and Proportionate Fees Dominate telecom expense management guide
Enterprises can choose their TEM consumption model from several options, ranging from basic do-it-yourself SaaS bundles or services to fully managed TEM with additional business process outsourcing (BPO) engagements as required. The commercial model includes options for bundled capabilities or an a la carte service.
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While the vast majority of TEM engagements now are for a managed solution, a very small minority of large enterprises still want to control the processes internally with the use of a self-managed platform, possibly with some add-on services, such as for bill payment. However, Gartner continues to hear clients sharing frustrations of invoice loading and particularly inventory management proving to be challenging, resulting in enterprises shifting to fully managed services to ease internal burdens.
The most frequently applied pricing model is a fixed fee in proportion to the amount of expense under management. This has been the standard for fixed estates, while management of a mobile estate has been priced as a fixed price per device, per month. This is now changing to that many contracts are now structured as a fixed portion of spend regardless of what type of service spend it relates to. Emerging models allow for the percentage to be aligned to the complexity of the service managed and to be more aligned to the effort required to manage the spend.
Service Capabilities Evolve to Life Cycle Services, Technology Simulations and Digital Transformations
While the traditional TEM offered covered legacy fixed and mobile communications services, portfolios and service offerings have evolved. Now many providers offer life cycle management and managed mobile services (MMS) integration (see The Enterprise Mobility Sourcing Continuum). Many also cover more services, such as IoT and other IT asset modules, or recurring costs for utilities and real estate. SaaS license tracking (such as for UCaaS) with associated license optimization has also become common as usage boomed due to the pandemic, and the risks and concerns about both SaaS and IaaS growth require greater control and tracking in enterprises.
While these evolving portfolios are representing a trend, Gartner inquiries and RFP-related requests are still largely on the traditional fixed and mobile estates. The clearest uptake trend is for more managed mobile services. AP and HR integrations are typically done via big ERP platforms (such as SAP), but where necessary, vendors can offer more customizable AP/HR integrations. Client inquiries also have increased with a dialogue around network transformation requirements and associated simulations. Enterprises are showing greater interest in project management assistance associated with network transformation, such as business case calculations for services like SD-WAN.
Factors Influencing TEM Vendor Selection telecom expense management guide
There are several factors that influence TEM vendor selection. These are some of the more prevalent ones:
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Price/contracts — Cost is important. Recent intensified competitiveness has resulted in some very aggressively priced offers. However, due to bundling of activities, it can be difficult to compare like for like, and pricing is, of course, not a reflection of the quality of service.
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Savings guarantees — These are being requested occasionally from new TEM clients (those that have not had TEM engagements in the past). In new TEM engagements, clauses in the contract have been negotiated to guarantee that the minimum amount of savings should equal or exceed the cost of the service. These contracts include exit conditions if those savings are not achieved each year, ensuring that the difference does not go back to the client. Not all vendors support this requirement.
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Operational quality, including account management, outcomes, SLAs and delivery capabilities — More RFPs include requirements to meet defined SLAs. SLAs are an important part of TEM engagements, especially to support improvement over time. A strong RFP will include requirements for SLAs that need to be adhered to. The quality of the RFP response and flexibility in negotiation are important, and the contract should include performance-related exits if SLAs aren’t met.
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Relevant reach and scalability — This is necessary to meet technical and geographical requirements. It is important to rightsize and be able to obtain the services required (and any additional services that may be put under management within the contract duration). Note and consider the validity of any partnerships that facilitate reach.
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Prior experience — Whether it has been positive or not, consider prior experience with telecom expense management vendors during vendor selection. This should include experience not only in a particular country, but also with particular partners in that country to meet geographic and technical requirements.
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Strategic direction — This is becoming more relevant as TEM vendors pursue different directions of travel, either toward more technology spend, or to corporate expenditures generally (such as utilities) or toward managed life cycle services.
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Service delivery — It is crucial to examine the availability of the vendor’s local resources and professional service delivery teams to determine the vendor’s ability to serve and scale according to enterprise requirements. For this reason, we see shifts toward managed services with professional service capabilities, despite many core TEM functions being automated through the platform.
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Continued platform evolution — This, combined with conformity to technical standards, data privacy compliance (such as the General Data Protection Regulation [GPDR]) and cybersecurity, must be considered.
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Merger and acquisition (M&A) activity impact — There is some uncertainty regarding roadmaps and long-term plans associated with platforms’ integration through M&A activity and whether vendor consolidations will impact day-to-day services. Long-term ownership has also become a consideration as many providers are now owned by private equity firms.
During the height of the pandemic, buying cycles for TEM were long, especially for larger deals, which often took from nine to 12 months. Since then, cycles have shortened somewhat, but prospective buyers are still carefully considering the business case.
To avoid being forced into month-by-month contracts (or even longer-term autorenewals), possibly worsening terms with existing vendors, enterprises should start the buying process earlier in the contract life cycles and keep up-to-date on the competitive landscape. The average contract term remains about 36 months, with a 12-month break/renegotiation clause. Some vendors provide month-by-month contracts, but this is not typical in this market.
Occasionally, some clients demand a try-and-buy model. This includes an initial audit in a contingency fee model covering a portion of the initial scope, and then will move to a three-year standard TEM contract when clients are satisfied with the outcome.
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