The telecom techco: The role of network cloud, automation and AI

Investment Rating - The report indicates a strong ambition among telcos to transform into telecom techcos, with 80% aiming for this transition within the next three to five years, driven by the need to overcome stagnant revenues and improve efficiency [3][46]. Core Insights - The core of the transformation involves autonomous cloud network platforms, which leverage cloud-native technologies, automation, and AI to unlock new revenue streams such as AI-driven services and network APIs [3][52]. - Despite the potential, progress is slow, with only 28% of telcos expecting to achieve high autonomous network maturity within three years, highlighting a reliance on non-cloud-native architectures [3][60]. Summary by Sections Executive Summary - 80% of telcos are pursuing a telecom techco vision within three to five years, primarily to address stagnant revenues and improve efficiency [3]. - Autonomous cloud network platforms are central to this shift, enabling new revenue streams [3][52]. - Only 28% of telcos expect to reach high maturity in autonomous networks within three years [3][60]. Recommendations 1. Link Network Modernisation to Telecom Techco Strategy - 82% of telcos aim to embody the telecom techco model within three to five years, driven by the need to improve financial performance [46]. - The top 160 listed telcos saw a 32% decline in market capitalisation from 2019 to 2023, while leading tech companies grew by 75% [8]. 2. Pursue AI and Automation Use Cases - Automation and AI are projected to generate financial benefits equivalent to 5% of telco revenues [10]. - The majority of telcos prioritize implementing AI/ML and automation in the next 12-18 months [10][70]. 3. Leverage Open Source - 92% of telcos report a maturity level of 2 or below in autonomous networks, indicating a need for open-source solutions to overcome vendor dependency [15][96]. - Telcos with high open-source adoption are 57% more likely to implement advanced cloudified network architectures [16][101]. Challenges - Significant challenges include unclear business cases, performance gaps in cloud-native stacks, and a lack of management orchestration tools [5][43]. - 94% of telcos have not implemented open RAN, indicating a slow adoption of innovative solutions [15][68]. Market Context - The report highlights that telcos are at risk of not reaching the maturity levels expected of a telecom techco, with 92% still at low maturity levels [60]. - The financial performance gap between traditional telcos and leading tech companies underscores the urgency for transformation [50][51].