How generative AI could revitalize profitability for telcos

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How generative AI could revitalize profitability for telcos

By Stephen Creasy et al., | McKinsey & Company | February 21, 2024

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Amid the intense competition and cost-cutting confronting telcos, early evidence suggests that generative AI (gen AI) could be the catalyst to reignite growth after a decade of stagnation. But will it be a groundbreaking differentiator or simply table stakes?

Already the technology is on track to become a new norm in the industry. Most telco leaders surveyed say they are developing gen AI solutions that range from pilots to full-scale deployments, and leading telcos such as AT&T, SK Telecom, and Vodafone have made much-publicized early gen AI commitments and launched trials. Some telcos around the world have started to experience significant double-digit percentage impact from this technology.  However, while nearly all of the 130 telcos surveyed are doing something with gen AI, survey findings suggest a palpable sense of caution and skepticism in the industry.  This blend of optimism and restraint highlights the critical juncture the industry faces. Seizing the gen AI opportunity to differentiate services and achieve sustainable growth will require the hidebound industry to embrace innovation, exploration, and agility at an unprecedented level and move from decoupled AI efforts to a holistic, AI-native telco.

How can telco leaders use the technology to drive AI transformations and unlock new value? What challenges do they face? And what will it take to succeed? The article offers insights into these critical questions.

Examples of AI use cases based on early pilots include the following: in customer service, in marketing and sales, in network operations, in IT, and in support function.

In the wake of their initial successes, business leaders surveyed say they plan to maintain or double their budgets for gen AI in the next year and invest in more than 50 dedicated full-time employees to pursue their gen AI ambitions effectively. More than half are already scaling up use cases.  However, despite the magnitude of the opportunity and the level of interest (and need), survey found few that follow the kind of holistic approach required to succeed at scale.

Finally, the survey findings suggest that gen AI has already begun to influence long-standing market dynamics. While European telecom operators have traditionally lagged in AI and technology transformations, survey findings indicate that they are pulling ahead of those in North America in their adoption of gen AI, especially in areas such as network operations and IT.

In order to achieve the above-mentioned impact, organizations will need to move away from the labyrinth of proofs-of-concept and scale the technology. As with any digital or AI initiative, there are no shortcuts in doing this. The same core building blocks are necessary, namely (1) a business-led roadmap, (2) the right talent, (3) an operating model for scale, (4) technology built for speed and innovation, (5) quality data that is easily accessible and managed in a responsible and accountable way, and (6) change management to ensure adoption and scaling. These are fundamental pillars in effectively scaling use cases and capturing sustainable impact from gen AI in the journey toward an AI-native telco. 

3 key takeaways from the article

1. Amid the intense competition and cost-cutting confronting telcos, early evidence suggests that generative AI (gen AI) could be the catalyst to reignite growth after a decade of stagnation. But will it be a groundbreaking differentiator or simply table stakes?
2. Already the technology is on track to become a new norm in the industry.   Most telco leaders surveyed say they are developing gen AI solutions that range from pilots to full-scale deployments, and leading telcos have made much-publicized early gen AI commitments and launched trials. Some telcos around the world have started to experience significant double-digit percentage impact from this technology.   However, a palpable sense of caution and skepticism is there in the industry.  
3. Despite the magnitude of the opportunity and the level of interest (and need), survey found few that follow the kind of holistic approach required to succeed at scale.

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Topcis:  Techniology, Telecom, Artifical Intelligence, Producitivity