Price Rises and Hardware Shortages – How Should Enterprises Respond?

G. Barton
G. Barton Research Director

Summary Bullets:

• Enterprises should be aware that different vendors have differing lead times on hardware.

• Service providers have held off on price increases thus far, but this may not be the case in the longer term.

Inflation and resource shortages have been two of the key global macro-economic trends over the last 12 months as the result of multiple contributing factors. Chip shortages have become a significant problem in almost all sectors, and the telecoms market has been significantly affected – albeit in an uneven way. However, while costs are going up, technology may also help enterprises be more efficient.

The first thing that enterprises should be aware of is that different network equipment (e.g., routers, session border controllers) vendors have been affected with greater or lesser degrees of severity. Some vendors are reporting very little disruption, with wait times only a few weeks longer than normal. The worst hit vendors, including some of the biggest names in the business, reporting delays of up to or even more than a year. Even more significant for the average enterprise customer is that some vendors have set up committees to prioritize which customers will receive hardware first with public sector bodies such as government, education, and healthcare being positioned at the front of the queue.

The shortfall is beginning to ease as the backlog of orders generated by the COVID-19 pandemic is dealt with, but the process is slow, and new chip-manufacturing capacity will take years rather than months to come online. Businesses may need to either consider switching from their preferred vendor or lowering their ambitions when it comes to feature sets. For example, WiFi chips sets are considered as a very low priority, so opting for routers without in-built WiFi and utilizing older equipment for WLAN requirements for the time being may be a way to speed up network transformation deployments.

When it comes to pricing, the enterprise telecoms market has been relatively shielded from the pressures of inflation in the global economy thus far. The market has seen rises in consumer broadband and mobile phone contract prices, but this has been less apparent in the B2B market and more advance telecoms products (e.g., WAN, IP voice) and managed and professional services have stayed relatively flat.

Competition and a desire to not be a first mover, as well as a genuine desire to be seen as a friend to business customers, are primary reasons for a relative lack of movement on pricing. This is unlikely to continue for too long. The combined pressures of increased wages and costs (particularly energy costs) cannot be absorbed by service providers forever – especially as they remain under pressure to deliver next-generation fixed and wireless access services such as full-fiber and 5G.

There is no single answer for enterprises. Service providers are increasingly prepared to be flexible and may well be willing to help businesses as they did during the pandemic. Hedging prices is also an option, but the reality is that most enterprises will have to factor in rising costs in their telecom budgets over the next couple of years.

Enterprises should also bear in mind that their service providers may also be able to help in reducing costs. GlobalData’s research shows that transitioning away from legacy technology solutions can deliver significant OpEx reductions in less than 12 months. For example, moving from private data centers to the cloud can lower energy consumption while investing in workforce efficiency tools increases efficiency and reduces travel.

Now is the time to be talking to service providers about how to weather uncertain times.

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