2024 telecom industry outlook has been saved
Perspectives
2024 telecom industry outlook
Five key trends shaping the telecom landscape
This year’s telecommunications outlook reveals a shifting landscape that may challenge communications service providers (CSPs) but could also present opportunities. Their strategies and investments today could determine their success—or failure—tomorrow.
The relentless demand for connectivity
While 2023 launched generative AI (Gen AI) into the world, 2024 is expected to see CSPs bringing the Gen AI proofs of concept they’ve been developing into the market. This will require them to better understand the costs and risks of data conditioning and governance, training foundational models, running inference at scale, and building guardrails to minimize errors and hallucinations. Many are already zeroing in on which kinds of data enable the best Gen AI use cases for their businesses. They will likely also look more closely at their data quality, security, and governance, and the implications of sharing it all with cloud providers.
Like all times of great change, there are risks and opportunities. CSPs have large cost burdens and larger responsibilities to deliver reliable connectivity and quality of service. In 2024, their investments could be challenged to pay off, and the businesses they once held dominion over will likely face strong competition from multiple quarters, especially in home broadband. Yet they may also have an opportunity to redefine their place in the connectivity ecosystem and strengthen their future position.
In our 2024 telecommunications industry outlook, we’ll take a closer look at these major forces at play and five key trends expected to shape the industry in the year ahead:
- CSPs are evaluating and experimenting to understand what it takes to implement generative AI: what the costs look like, what the return on investment is, where they can develop early use cases—and where they can’t yet. As they work to operationalize their generative AI models, more opportunities are emerging, especially in customer care, customer service, and network performance.
- Across industries, workplaces have been shifting toward flatter organizational structures that give individual employees more power and autonomy. Although global telecom organizations may have lagged in this shift until now, they particularly need fewer silos and more cross-functional corporate structures.
- In 2024, US consumers will enjoy far more options for broadband connectivity—more than double the amount previously available. The abundance of options reflects more competition among providers—and technologies—working to meet the evolving connectivity needs of consumers.
- Cloud providers have been increasingly competing directly with CSPs since the pandemic and may be reaching a global tipping point in 2024 where some buyers of connectivity services could see cloud companies as possible alternatives to CSPs for multiple services, potentially eroding revenues and profits.
- Although 5G networks are still being launched in some new geographies, and networks are being made denser, the bulk of CSP spending on 5G equipment seems to be behind us, and there are few signs that the trend will reverse. This has positive implications for CSPs that may have higher free cash flow as 5G build-out settles but has negative implications for the companies that make 5G wireless equipment.
Download the full report to learn more about the impacts of telecom industry trends, key actions to take, and critical questions to ask.
Like many industries, telecom is already being affected by generative AI. CSPs are evaluating and experimenting to understand what it takes to implement generative AI: what the costs look like, what the return on investment is, where they can develop early use cases—and where they can’t yet. As they work to operationalize their generative AI models, more opportunities are emerging, especially in customer care, customer service, and network performance.
Generative AI offers CSPs pathways to make sense of the unstructured data they have across different parts of the business. This can enable them to start breaking down data silos, for example, by bringing together customer care transcripts, network logs, and maintenance records. Providers may then better equip a customer service agent, field tech, or tower operator by delivering insights directly suggesting the best response or action. Such copilot relationships can potentially empower productivity across data-driven parts of the business.
To advance their generative AI strategies, CSPs will likely need to secure the right talent. This could mean competing against other industries that are often seen as more desirable and can offer higher salaries and stock-based compensation—or reskilling their own talent.
Strategic questions to consider:
- How should CSPs prepare to implement generative AI? What is needed for data, training and inference, security, and talent?
- When and where should a CSP build, buy, or rent capabilities? What ecosystem relationships are necessary, what are their costs, and how do they need to be secured to protect proprietary data?
- Even if CSPs want to own their own generative AI hardware, prices are currently high and chips are hard to get. Does it make sense to wait until late 2024 or even 2025 before securing hardware?
- What are the risks of moving too early or too late?
As telecoms move toward flatter work structures, generative AI can make that transition both more urgent and more complicated. It’s a bit of a chicken-and-egg situation: Generative AI may make it easier to flatten work structures and reduce headcount in some mainly nontechnical areas, but telecoms need to attract the right kind of generative AI talent that may expect the workplace to already have become less hierarchical.
Across industries, workplaces have been shifting toward flatter organizational structures that give individual employees more power and autonomy. Although global telecom organizations may have lagged in this shift until now, they particularly need fewer silos and more cross-functional corporate structures. They also need more tools and technical processes, including Gen AI, to accommodate the growing technological requirements of the industry.
Existing IT and tech workers within telecom organizations can help drive the internal shift toward collaborative models across functions to solve complex problems, but telecoms also need to reorganize to attract more and different IT and tech talent, especially around Gen AI. Some organizations may need to bring in talent from outside of the industry, especially from the technology sector, who can help reshape teams to be more agile.
Strategic questions to consider:
- As talent structures shift to make way for less-hierarchical, cross-functional models, how can CSPs empower their employees to take accountability for their growing roles within the business?
- What resources can organizations adopt to upskill their employees to be ready for incoming technological developments?
- What roles within organizations can be supplemented with generative AI technology? Which staff members can generative AI free up to focus on other areas of the business?
In 2024, US consumers will enjoy far more options for broadband connectivity. Some Americans could have nine or 10 possible services from a mix of terrestrial wireline, terrestrial wireless, and space-based wireless networks. Not all of those services are equally fast, but not all consumers need the highest speeds, and slower services such as fixed wireless access (FWA) and satellite may be enough.
Most US consumers now have more choices for how to obtain internet service, and historically underserved areas are seeing more funding to extend broadband coverage. According to the Federal Communications Commission, as of June 2021, almost 61% of households had a choice of three or more wireline providers. Adding to the options, satellite internet service now covers the entire United States (although with limited ability to support many users per square mile), and FWA is available to many consumers as well.
For CSPs, more connectivity solutions, more providers, and larger government mandates may add some uncertainty to the year ahead. But it may already be lowering the cost of connectivity for US households.
Strategic questions to consider:
- What is the right strategy for attracting and retaining broadband customers in the face of increased competition? Can CSPs bundle additional services (such as mobile, home security, entertainment) to make their offerings more attractive, as is already done in Europe?
- What are the implications for CSP strategy and business plans if downward pressure on prices intensifies?
- As the broadband landscape continues to reshape, what kinds of new partnerships should CSPs consider?
- How can CSPs optimally utilize government infrastructure funding?
The shape of enterprise connectivity has evolved, calling for more integration across provider ecosystems and yielding more connectivity offerings from cloud providers. Cloud providers have taken a stronger role in providing connectivity solutions that reinforce performance for their cloud offerings, drawing them into closer competition with CSPs. As some buyers of connectivity services could see cloud companies as possible alternatives to CSPs, 2024 may add more pressure on CSPs to further differentiate their offerings while reinforcing their strengths in the modern enterprise.
To support distributed businesses and functionality, many companies shifted their workloads to the cloud. High cloud rents—combined with the recent rise of hybrid workers, remote access, and an array of endpoints—have led more companies to develop hybrid networks across multiple cloud regions and on-premise data centers. This may change their connectivity profile considerably, with implications for how CSPs can integrate with a more diverse ecosystem.
CSPs can help provide better and more connective tissue across these ecosystems and offer hyperscale cloud providers the opportunity to better integrate with CSP infrastructure. This may be an imperative for CSPs to help them replace legacy product revenues and margins with next-generation solutions of advice, integration, and management.
Strategic questions to consider:
- How can CSPs drive growth as enterprise customers indicate demand for new cloud architectures? How can CSPs work with cloud providers and avoid being cut out of the process?
- Is there a way to differentiate products with innovative ecosystem monetization models, rather than end-to-end ownership?
- Are there new business models for how enterprise companies want to purchase connectivity?
- What do they buy, and from whom, to enable this new network/compute architecture?
Although 5G networks are still being launched in some new geographies, and networks are being made denser with more towers and antennas, the bulk of CSP spending on 5G equipment seems to be behind us, and there are few signs that the trend will reverse. This has positive implications for CSPs that may have higher free cash flow as 5G build-out settles but has negative implications for the companies that make 5G wireless equipment. If annual revenues fall too far, the industry may see fewer vendors.
Since 1990, roughly once per decade, the global wireless industry has upgraded the entire ecosystem: 2G in 1992, 3G in 2001, 4G in 2010, and 5G in 2019. Each generational upgrade required mobile network operators (MNOs) to spend billions of dollars globally on radio access networks (RAN) and spectrum; it also requires the distribution of new phones to consumers to take advantage of the new technology and networks. The companies that make RAN gear (the original equipment manufacturers, or OEMs) and the companies that make phones saw their revenues and profits grow rapidly during the adoption phase of each upgrade cycle—and then flatten or decline until the next generational upgrade occurred.
In 2024, the industry will likely be in such an intergenerational trough. Smartphone sales fell 5% in 2023 to 1.16 billion units, the lowest in a decade. As we showed in our 2024 Global TMT Predictions, vendors of leading online applications are not expected to require any more bandwidth from users for at least the next two years. Meanwhile, RAN revenues peaked in 2021, were relatively flat in 2022, and, by the first half of 2023, were “declining at the fastest pace in seven years.”
Strategic questions to consider:
- Will we see further OEM consolidation? What implications would reduced vendor choice have for buyers of RAN gear? Will Open RAN technology help expand vendor choice? Will buyers of network gear increasingly select vendors based in part on their willingness to support Open RAN?
- Given the lack of 5G monetization from MNOs, and few or no imminent “killer apps” for either consumers or enterprises that require higher speeds and lower latencies, is it possible that 5G Advanced gets pushed back, which could have a knock-on effect and push 6G back? What would that do in terms of lengthening the intergenerational spending trough?
- Although we’ve focused on telecoms and OEMs, there is an entire ecosystem of companies that rely on a decadelong cadence of generational upgrades—smartphone makers, smartphone vendors, semiconductor companies, tower and construction players, and more. What impact does the current trough have on these, and what could an extended trough do?
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