Telco Industry Trends and Outlook for 2024 - Part I: “The Next Big Things”

Preamble

As the end of this year approaches, and we gradually step into a new one, I would like to provide a brief, relatively high-level overview of 2023 and what lies ahead. This article will reflect on the main industry drivers and themes (hot topics!), discussing what to expect in the global telecommunications industry in 2024 based on my observations, consulting experience, and client discussions.

In addition, and as an extension of this article, another one will be released next week with a bit more granularity and a specific focus on what to expect in B2B, B2B2X, and B2C. Before delving into these insights, it is crucial to acknowledge that the shape of the world’s economy cannot be ignored, so let's start with that.

Overview of the Global Economy in 2023 and Predictions for 2024

On a macro level, according to IMF’s latest forecast, global growth is expected to be around 3.0% in 2023, down from 3.5% in 2022. This is significantly lower than the historical average of 3.8% between 2000 and 2019. Regarding the outlook for 2024, advanced economies are projected to continue slowing from 1.5% in 2023 to 1.4% in 2024 due to the impact of previous policy tightening. Similarly, growth of emerging markets and developing economies are forecasted to stagnate at 4.0%, respectively, in both 2023 and 2024.

Overall, the global economy is expected to remain weak in the upcoming year due to slowing and diverging growth, relatively high inflation (declining but still above pre-pandemic levels), and geopolitical risks, all contributing to a more uncertain outlook.

The Economic Climate's Implications on the Telco Industry

One of the most significant indicators from both a macro and industry perspective is global telecom M&A activity. By examining Bain & Company’s historical data on telecom M&A deals, we observe a drop from $81 billion, down 39% from Q1-Q3 2022, to $49 billion in deal value in Q1-Q3 2023. Infrastructure transactions dominate the market, aligning with the asset-light strategies of many traditional telcos through the divestment of their fibre and mobile tower assets. However, a steady decline in both the number and value of deals has been observed during this period.

Despite facing a slowdown and various challenges, the long-term outlook for the telco industry remains positive. In the short term, however, particularly in 2024, the focus will be on identifying growth opportunities within the constraints of stringent CAPEX and OPEX budgets. Moreover, there seems to be little room for experimentation and only a slight margin of error.

Telcos that can adapt to this challenging landscape, forge cross-industrial partnerships, justify their expenses, make strategic investments in scalable technologies, and develop innovative solutions -especially for their B2B or B2B2X clients- may gain a significant edge over their competition in the coming years.

However, achieving this requires addressing the reluctant financial and investment climate both internally and externally. Besides, telcos must also convince their shareholders, internal stakeholders, and customers that they can deliver value and achieve profitability within a 1-3 year timeframe.

Navigating the Trends: A Glimpse into 2024

The intensity and relevance of these themes and topics may vary depending on the maturity of specific markets and regions, as well as vertically within the company divisions and between their B2C, B2B, and B2B2X lines of business. Nevertheless, it is presumed that these will be the most cited and discussed “newish” topics across strategic meetings, product development sessions, boardrooms, industry panels, and conferences in general.

I. The Introduction and Spread of AI and AI - Large Language Models

Yes, I know, I know, I know… AI again… Without delving into the bits and pieces of AI, LLM, and Generative AI, the goal is to offer a high-level overview and highlight some of this technology's most frequent use cases and applications in the telco domain.

1) Chatbots and Customer Care Assistants

In pursuing experimentation and driven by relevant financial considerations, 2024 might witness the emergence of AI-powered chatbots taking on simple, repetitive customer care inquiries via chat or virtual assistants in IVR systems. This transition beyond cost reduction could unlock opportunities for 24/7 support, personalised recommendations, and efficient query resolution for routine tasks.

Nevertheless, challenges in language localisation, dialect handling, and potential client and customer resistance may need to be addressed. The expected resistance from the workforce and the possibility of adverse and extensive societal and political reactions introduce complexity to adopting such technology, affecting both advanced and emerging countries.

2) AI-Powered Network Optimisation

In network management, the initial testing and release of AI applications, combined with integrated networks, edge computing, and SD-WAN capabilities, offer predictive capabilities, automated operations, and the potential for self-healing networks.

These opportunities encompass optimising resource allocation, ensuring efficient network utilisation, anticipating potential equipment failures, and scheduling preventive measures to reduce downtime and maintenance costs, ultimately contributing to potential cost savings.

3) Product Development and Marketing Applications

AI and LLMs provide opportunities to create innovative services and enhance existing ones. Additionally, AI improves features like call quality, video streaming optimisation, and network security, leading to enhanced user experiences.In marketing, AI may facilitate personalised campaigns and offers by tailoring them to individual customer needs and preferences, thereby improving engagement and conversion rates.

Nevertheless, implementing AI in these areas comes with challenges, such as ensuring responsible data collection and usage to maintain customer trust, addressing potential biases in AI models, and enhancing transparency in decision-making processes within organisations. Overcoming these hurdles will be vital for successful integration and realising the full potential of AI and LLMs in product development and marketing applications.

II. Sustainability and Environmental, Social and Governance (ESG)

Sustainability and ESG considerations present challenges for major companies, and telcos are not exempt from these demands. This includes the emerging phenomenon of ESG scores by rating firms, directly impacting shares and company value. In line with this, telcos must address critical aspects such as meeting investor expectations, managing environmental impact, addressing social concerns, and ensuring compliance with evolving regulations.

However, embracing these factors also provides opportunities for telcos, such as building a solid brand reputation, developing innovative business models, diversifying their portfolio, reducing long-term costs through sustainability initiatives (such as cutting energy consumption and/or transitioning to greener resources), and attracting top talent in a competitive job market.

III. 6G - The Fulfilled 5G Promise?

The anticipation is that 5G, especially "5G Standalone", will mature by 2024, particularly in markets where providers engaged in the “gold rush” that began in 2019. This outlook includes a nod to the prospective evolution to 6G, which is expected to realise the promises made by its predecessor, 5G.

The historical progression from 2G, with a focus on wide coverage and reliable voice calls, to 3G, which promised but fell short in coverage and incurred higher infrastructure costs, sets the context for the advancements and challenges in subsequent generations of cellular networks. While 4G networks excel in ultra-fast data speeds, a broad array of data services, and low latency, they face challenges in limited coverage, higher power consumption, and higher overall costs compared to 2G and 3G networks.

5G Standalone was anticipated to deliver speeds 100 times faster than 4G LTE, lower latency for real-time applications, greater capacity, improved reliability crucial for applications like autonomous vehicles, enhanced flexibility fostering innovation, and diverse use cases such as IoT deployment, immersive VR/AR experiences, powerful AI applications, efficient cloud computing services, and the development of smart cities.

Although 5G Standalone was expected to deliver these broad improvements, it fell short on most fronts. The hope is that 6G will bring a real breakthrough by leveraging AI, machine learning, automated SD-WAN and edge-computing capabilities. However, monetisation and investment will be challenging, requiring a paradigm shift for industry players to focus on selling solutions across industry verticals and necessitating a distinct skill set, which may not be readily available in traditional telcos.

Interestingly, several telcos, including Orange, have started to express a shift away from marketing 6G, instead focusing on constant capability enhancement in the future. This shift reflects a promising trend, emphasising a move beyond xGs and a commitment to continuous improvement for the benefit of all.

IV. The Emergence of Non-Terrestrial Components

When I attended the Asia Tech Singapore conference in June, I was a little surprised that a significant portion of the vendors and attendees were from satellite and Low Earth Orbit (LEO) providers, as they held their annual convention there and assembled again a couple of weeks later in Sydney. This indicated the growing trend and significance of non-terrestrial technologies and systems operating in space or, in the case of drones, in airspace.

In 2024, a surge in the deployment of such systems and satellite launches is anticipated to drive the integration of terrestrial and non-terrestrial components into cellular networks. This integration promises a more robust communication infrastructure, offering enhanced connectivity, improved reliability, increased bandwidth, and establishing communication networks with an asset-light, third-party model. Additionally, there are advantages to IoT and M2M connectivity, especially in rural or underdeveloped areas.

This field is expected to evolve rapidly and change dynamically in the upcoming few years, with many use cases emerging for both consumers and businesses. Besides identifying business models, validating- and applying (selling) use cases, system integration, and seamless provisioning will be crucial for viability.

Conclusion

In summary, the telecommunications industry in 2024 will be navigating through transformative trends and challenges. The impact of global economic conditions, especially in the wake of a weaker outlook and various uncertainties, will heavily influence telco strategies, particularly in dealing with stringent CAPEX and OPEX budgets. AI, Large Language Models, and machine learning present both opportunities and challenges. Sustainability and Environmental, Social, and Governance (ESG) considerations emerge as critical factors, requiring telcos to balance societal expectations and business innovations. The evolving anticipation of 6G brings excitement and challenges, urging a shift towards continuous improvement beyond conventional xGs. Additionally, the rise of non-terrestrial technologies and satellite integrations paves the way for a more sophisticated and interconnected network infrastructure.

As I bring this discussion to a close, I express my appreciation for your time and engagement with the article. I hope it brought some valuable insights that sparked some ideas. The second part of this series, which explores B2B, B2B2X, and B2C aspects to provide a more nuanced overview of these (and some additional niche) trends impacting the sector, is scheduled for release next week.

Disclosure: The opinions expressed in this article are those of the author, Alex Hagelmann, and do not necessarily represent the views of Hanoku Group, Hanoku Consulting Singapore or StratX Australia by Hanoku. While the author aims for objectivity, it's essential to acknowledge the inherent subjectivity of opinions, which may be influenced by personal interpretations of research, experiences, or perspectives. References to individuals or events are for analytical purposes and not endorsements. The author has no financial interests influencing this article, and any potential conflicts of interest would be disclosed. Diverse perspectives are encouraged, and constructive dialogue from the readers is welcomed.