Telecommunications Industry Remains Stagnant: Cloud and AI Offer Path to Growth

By Greg Tavarez March 19, 2024

For the past decade, telecom service providers have been stuck in a financial quagmire. Revenue has remained stagnant, hovering around the same levels (despite significant effort). This lack of growth is particularly concerning because, at the same time, network costs have been steadily climbing.

This financial squeeze is eroding profit margins, the lifeblood of any company. If left unchecked, it could lead to a scenario where telecom providers struggle to stay afloat, jeopardizing the very services millions of people rely on for communication and internet access. Telecom providers must find ways to innovate and create new revenue streams, or risk becoming relics of a bygone technological era.

This is the central finding of a new report, "Reinventing Core Communications: Strategic Imperatives for Growth," recently released by Alianza (News - Alert), a cloud communications platform provider. So, let’s take a closer look.

Global telecom revenue has remained stubbornly stagnant since 2014, hovering around $1.9 trillion. Meanwhile, capital expenditures skyrocketed to $3.6 trillion. While these investments have boosted bandwidth capacity, they've come at the cost of increased operational complexity and eroded profit margins.

Competitive pressures have also intensified. Major vendors dominate the lucrative large enterprise space, while cloud-based service providers are steadily encroaching on the traditional telecom market with their internet-delivered offerings.

So how does the industry break the cycle of inefficiency?

The telecom industry has a reputation for being risk-averse and slow to adopt new technologies. Service providers often prioritize optimizing existing network infrastructure over exploring innovative approaches. This inertia extends to core communication services like voice and unified communications, which remain tethered to legacy on-premise systems.

Further compounding the challenge is a workforce issue. As older voice network engineers retire, the next generation lacks the training and hands-on experience to maintain these complex systems. This talent gap threatens to compromise the quality of service experienced by end-user customers.

Service providers can no longer afford to overlook core communications as an area ripe for innovation. Embracing a digital-first approach to service delivery and customer support can be a game-changer. By leveraging cloud-based solutions, providers can differentiate themselves not just on features, but more importantly, on the overall customer experience. This shift will be crucial to attracting and retaining customers in a competitive landscape where seamless interaction is paramount.

One promising technology is generative AI-powered voice solutions. These systems utilize natural language processing and sentiment analysis to deliver intelligent functionalities that extend far beyond current enterprise and contact center applications. Targeting SMBs, AI-powered voice solutions open new revenue streams in a sector that contributes to the global economy – 43.5% of GDP in 2023.

With the change, there are five potential business models for service providers and their cloud partners to modernize core networks: buy-from, marketplace, sell-through, side-by-side, and co-investment. Each approach offers advantages and drawbacks, but the report highlights the Sell-through model as the most suitable for voice and UC services. This model further branches into passive and integrated options, with the latter enabling service providers to retain control over customer relationships and deliver a unified experience.

Brand equity also emerges as a key differentiator. Passive sell-through vendors hold primary contact with end-user customers, potentially eroding the service provider's brand recognition. In contrast, integrated sell-through ensures that providers remain the customer's trusted partner, managing the entire experience. This focus on brand equity will become increasingly important as competition matures in the cloud communications space.

“The new report outlines the current reality that telecom sits at a crossroads, where its historical aversion to change challenges future viability," said Kevin Dundon, Chief Strategy Officer for Alianza. "The risk of doing nothing now outweighs lagging concerns about migrating core communications to the cloud. Service providers must address the growing urgency to innovate and modernize core communications to overcome the consequences of market trends that have shaped the industry for too long."

The relentless pressure of stagnant revenue cannot be ignored indefinitely. Service providers are approaching a tipping point, where the need for growth will compel them to embrace new strategies. Migrating voice and UC services to the cloud offers a compelling solution. By optimizing service management and freeing resources, this shift allows providers to pursue innovation driven by AI.

Edited by Alex Passett
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