Telcos Embrace Generative AI and Cloud Solutions for Future Growth
The telecommunications industry has experienced a transformative year, marked by the rise of generative artificial intelligence (AI) and ongoing macroeconomic challenges. Telcos are facing the need to reevaluate their business models and shift their strategies in response.
While revenue growth has traditionally been the top priority for telcos, the focus is now shifting towards maximizing efficiencies due to the increasing cost of financing. Surprisingly, only one in ten telcos have managed to reduce their operational expenditure (opex) over revenue in the last decade, according to Omdia.
With worldwide spending on digital transformation projected to reach almost $3.9 trillion by 2027, telcos must carefully consider their capital expenditure (capex) and how to align it with their spending. The cost of building and operating networks is on the rise, prompting telcos to explore new approaches that optimize spending based on usage.
Generative AI has been generating a great deal of buzz lately, with telcos expected to significantly increase their spending on the technology. According to a survey by Altman Solon, generative AI spending among telcos could surge up to six times the current amount. Furthermore, the use cases for generative AI are predicted to have an average adoption rate of 34% among communication service providers (CSP) within the next year, escalating to 48% within the next two years.
Telcos are currently in the first phase of generative AI utilization, implementing solutions like call summarizations and chatbots that augment existing systems. Within the telco industry, customer-facing chatbots are the most widely adopted use case for generative AI, with 92% of CSPs highly likely to implement chatbots, and 63% already having them in production.
Looking ahead to 2024, we can expect the next phase of generative AI adoption, where telcos will mature and scale their AI-powered tools and experiences. There will be a strong emphasis on leveraging generative AI to enhance the customer experience. This can be achieved by personalizing product offers and marketing to create new value opportunities.
One New Zealand telco has already introduced a generative AI solution that helps its contact center agents better understand customer calls and proactively support call resolution. This resulted in a 10% increase in customer trust. Amdocs, a leading provider of software and services to communications and media companies, has demonstrated the speed at which generative AI use cases can be built to drive business value with their launch of Stellar Elements. Cox Communications also utilizes generative AI to foster innovation and improve customer service, significantly reducing the time spent on manual documentation searches.
Telcos are also turning to Software-as-a-Service (SaaS) solutions to address challenges such as legacy tech debt and improve the overall customer experience. Utilizing SaaS solutions from providers like Salesforce, Adobe, and Amdocs, telcos like T-Mobile are swiftly transforming their customer experience as part of their digital-first vision. The adoption of SaaS solutions by telcos will continue in 2024 with a focus on improving time to market for new products and achieving better financial performance and business agility.
Another area of focus for telcos is the exposure of network capabilities through Application Programming Interfaces (APIs). This allows telcos to unlock information from 5G networks and gain more control over network programmability, particularly regarding quality of service and bandwidth. As APIs become standardized across operators, telcos will need to evaluate whether to host their own API network or collaborate with cloud providers.
The cloud plays a vital role in helping telcos create more cost-efficient networks, leading to a reduction in operating expenses/revenue ratios by over 10%. Cloud Radio Access Network (RAN) technology will continue to be a focus for telcos in 2024. By leveraging cloud RAN, telcos can achieve higher efficiency, cost reduction, and reduced power consumption. Operators like NTT DOCOMO and NEC Corp have demonstrated power consumption reductions of over 70% using cloud RAN.
Beyond cost optimization, the cloud opens up new revenue opportunities for CSPs. It allows them to reimagine product lines and capabilities. For instance, Deutsche Telekom combined its connectivity services with third-party connectivity, computer, and storage resources to create a globally distributed enterprise network. Canadian telco TELUS released a smart home solution in 2023 that simplifies the installation process for new devices and reduces the need for multiple smart home apps.
In summary, telcos must carefully evaluate and select the right cloud provider to unlock the full potential of enterprise-ready generative AI capabilities, utilize a wide range of cloud-native SaaS providers, and access thriving developer communities for their APIs. By embracing emerging trends and technologies, telcos can accelerate their business goals and lay a solid foundation for long-term success beyond 2024.
