The Telco-to-Techco Reinvention Playbook: Three Moves That Matter

Every sector of the economy is being transformed by technology advances, especially the cloud, digitization, mobility and most recently, AI. Any one of these would be enough to drive disruptive change, but they are all very much in play currently, and each requires a different response in order to adapt. On top of that, these technologies are interconnected, so there is also a compounding impact that each has on the others, giving rise to new forms of change that we haven’t seen before.

"The more rooted a business is in legacy technologies, the greater will be the challenges..."

The more rooted a business is in legacy technologies, the greater will be the challenges for adopting new technology. This also applies to how both IT and business leaders think about technology change and understanding the true impact on business success. 

These new technologies are not about doing a refresh to update technology and maintain the status quo. They represent fundamental change, not just for what new technology can enable, but for the very essence of the business itself. Only by being ready for change, and taking an open-minded approach to new technology can a business evolve successfully. Otherwise, what should be viewed as an opportunity, will only be seen as a threat. 

Why These Changes Matter for Telcos

While this overview holds true for most businesses, it’s particularly relevant for telcos. Perhaps more than any other type of business, telcos were protected by monopoly status for most of their history. Having been deregulated for over 40 years, that world is in the distant past, but a lot of legacy technology – and thinking about legacy technology – remains. In many ways, telcos have adapted quite well to newer technology, but largely in the service of becoming a more modern telco, albeit nothing more.

"...telcos have adapted quite well to newer technology, but largely in the service of becoming a more modern telco..."

Those changes are necessary, but not sufficient conditions for telcos to more fully evolve for today’s customer needs. I outlined what the latter looks like in my earlier article here – where the full path to modernization entails a fundamental transition from being a telco to becoming a techco. 

Many carriers are well along this path, making them well-positioned for a post-telco world; but others are still trying to chart their course in a market that is being redefined by three core technologies – cloud, 5G and AI. This follow-on article presents three keys to success that go beyond simply adopting these new technologies. There’s a bigger picture here, where telco leaders should be rethinking what business they’re actually in, and why the techco model is the path for getting beyond being a telco.

Key to Success 1 – Becoming Innovation-Centric

This is an extension of a key theme from my earlier article, namely to be more customer-centric. Dial tone and minutes still matter for telcos, but being commodities, anyone can provide them, and they are no longer the basis for a viable business model. The TDM world has evolved little over the past 50 years, and today’s customers depend on technology-driven innovation for their very survival. If telcos can only provide legacy services, customers will go elsewhere, and there are plenty of cloud providers who can natively meet those needs.

"...customers won’t wait, especially with so many providers who can offer new services today."

One response is for telcos to develop an innovation-first culture that drives this internally. While this may be the most desirable scenario, most telcos would be starting from a basic level, making this a years-long process. With today’s pace of technology change, customers won’t wait, especially with so many providers who can offer new services today.

The shorter path to success is to focus on open source platforms that leverage APIs to develop programmable applications that integrate with other applications and network functions. This approach also needs to be mobile-centric, as this is becoming the dominant communications mode, especially for consumers. Not only is RCS poised to emerge as a core channel for leveraging AI-based applications, but also a leading opportunity for techcos to monetize new services that traditional telcos cannot do.

"...RCS poised to emerge as a core channel for leveraging AI-based applications..."

These capabilities are essential to support continuous innovation, a characteristic of techcos that telcos generally lack. To the extent telcos cannot provide this internally, they will need to build partnerships with vendors who understand the telco business, and can support these capabilities at scale. The latter is especially critical for Tier 1 carriers, and a good example is the recent announcement from Twilio where they are partnering with Orange to provide RCS messaging to business customers in France.

Key to Success 2 – AI-Based Network Transformation

AI is becoming the great enabler across all types of businesses, and for telcos, the key drivers are network optimization, and analytics to develop both new services for customers, and new revenues from customers. Each of these AI drivers warrants further exploration, but for this article, the focus will be on the network, as this addresses fundamental pain points that are holding telcos back from fully modernizing.

"...telcos spent $294.6 billion on Capex globally in 2024, and $1.18 trillion on Opex."

Cost is the key pain point, so before considering innovation strategies to develop new services, the economic challenges related to network modernization must be addressed. According to a new report from MTN Consulting, telcos spent $294.6 billion on Capex globally in 2024, and $1.18 trillion on Opex. In absolute terms, these spend levels are significant, especially for carriers who invested heavily in 5G buildouts, but have realized little in the way of new revenues. 

Not only is there growing pressure to generate top line growth for telcos, but also to reduce operating expenses as revenue growth lags. The report also shows that Capex spend is down 7.7% YoY, which shows that carriers are trying to cut costs, but also reflects acceleration towards the cloud, where the cost burden shifts more towards Opex and away from Capex. As such, on an industry basis, this supports the idea that telcos are evolving towards being techcos, but it will be an ongoing transition.

This is where AI plays a central role to shorten the timeframe to develop a network that can cost-effectively and reliably support the innovation needed for those new services and revenues. The role here for AI is to reimagine network architecture that is highly automated and far more efficient than the way telcos have done things for so long. This represents a new level of intelligence where AI can autonomously manage networks and optimize performance with more accurate forecasting. 

These networks can also be self-healing – in real time – where problems can be anticipated and fixed before becoming problems. These capabilities do not exist for telcos in their current state, but by taking an AI-native approach to network architecture, techcos can have much better resilience, which translates into better uptime and reduced operational cost.

To illustrate, consider how BT is making AI core to their network transformation plans, especially to serve their global customers. Dubbed BT International, AI is being used to become both “asset light and platform rich”, whereby a multi-cloud model allows them to manage traffic across the various clouds their large customers are using; not just to support the borderless nature of cloud communications, but also for using AI to intelligently route massive volumes of traffic while maintaining carrier-grade reliability.

BT is also a good example of partnering with a hyperscaler – Google – reflecting the need for partnerships now to support the innovation so badly needed to drive revenue growth. As important as hyperscalers are for any form of cloud migration to modernize, it’s important to note that telcos are using other types of partners as well. 

Case in point - while Nvidia may not come to mind as a telco partner, they have long recognized the opportunity in this market, and have developed an AI Blueprint, specifically for helping telcos adopt AI to modernize their networks.

Norwegian telco Telenor is on the leading edge of this new model with Nvidia, especially for training LLMs on their own data – including 5G - to develop autonomous capabilities for network configuration and optimization. As these capabilities become more established, I expect to see Nvidia playing a growing role helping telcos make this fundamental transition to being techcos.

Key to Success 3 – Maintaining Customer Trust

This success factor can take many forms, but the bottom line is maintaining trust, if not enhancing it to show how customer-centric telcos are as they transition to being techcos. Not only is this needed as telcos become a new type of entity, but also by being AI-centric, they take a responsible approach to ensure that privacy and security are safeguarded.

Trust itself can take many forms, especially for legacy telcos, who come from a world where trust was based on providing 5 nines service reliability. That was the norm for a long time, and when IP-based competitors entered the telephony market, they could not match that benchmark, and it took a long time until they could provide comparable reliability to compete successfully against the incumbents.

"Today’s demands on telco networks are more complex than when they only offered telephony..."

Today’s demands on telco networks are more complex than when they only offered telephony, and as AI gives rise to new services, the challenges for providing service reliability become greater. Compounding this are the rising expectations around 5G, especially for real-time applications like streaming, where connectivity and uptime are critical for trust with end users. 

In this regard, as telcos evolve to being techcos, they cannot lose sight of how important service reliability is for trust. This is especially true in terms of being compliant on the regulatory front, such as with the FCC in the US, or the CRTC in Canada. 

Aside from the long-standing requirements to ensure consumers have access to reliable service, and that providers live up to their connectivity performance promises, they must also comply with requirements for emergency services (911), disaster response, public safety and protecting consumers from malicious practices such as robocalls.

These requirements may sound like artifacts from legacy times, but they are foundational for trust with customers, both B2B and B2C. More importantly, the cloud-native hyperscalers already operate as techcos, so they don’t need to make this transition. Aside from their massive scale, they have another inherent advantage over telcos when viewing them as a competitive threat. Having evolved entirely from the world of IP communications, hyperscalers have largely been unregulated, at least in the ways that have kept telcos from innovating with new technology. 

While hyperscalers have had their share of service outages and security breaches, they do not pay the heavy price that telcos do in similar situations. Conversely, however, because telcos have those guardrails in place, they can offer a stronger product promise to customers. Since the hyperscalers are already well-established as techcos, telcos cannot afford to compromise on these cornerstones of customer trust as they evolve to compete head-on with them – reliability, service quality, security and privacy.

Conclusion

There may be no easy path to becoming a techco, but it should be clear why this transition is so important for telcos. Technology is advancing too quickly for what telco business models can support, and with hyperscalers setting the pace for these technologies, telcos face two options. They can choose to compete with them head-on for share of wallet with customers, but will only have success by becoming techcos themselves. Or they can accept that partnering with them is the best way to serve customers, even if that means sharing the pie.

Essentially, telcos have a strong incentive to become techcos as fast as possible. The good news is that there are multiple paths forward, and the success factors outlined herein provide a roadmap that any telco can follow. 

Whatever path is chosen, success will not be dependent on technology adoption alone. Equally important will be the thinking behind this transition, not just for adopting the right technologies, but for moving beyond telecom and building a business model around the key success factors for being a techco.