Authored by Jon Arnold from J Arnold & Associates.
Telecom carriers, by their nature, have always been in the telephony business. In earlier times, this was all they needed to be, as telephony became a key enabler of the modern economy that took shape in the late 19th century. So vital was telephony to modernization in the US, that the Bell System operated with monopoly status for almost 100 years until its deregulation in 1984.
For large carriers in particular, telephony has been core to their DNA, but their culture of innovation did not extend very well to other technologies or services. Aside from the fact that deregulation opened up telecom to new competitors, around the same time, the broader technology industry was emerging. As these technologies matured, new forms of communication came to market that legacy telcos didn’t fully anticipate, such as email, the Internet and mobile telephony.
"This created a revolution in communications technology..."
This created a revolution in communications technology that saw many new players rival telcos, and while many have survived – and many did not – the net result has been that telcos no longer have the market to themselves. Telephony remains an essential communications service, but today it is just one of many channels we use, both at home and at work. Not only has traditional telephony been in decline since deregulation, but the opportunities for revenue growth are limited at best.
Telcos have long been aware of this existential threat, and to adapt, many have been transitioning to a business model known as “techco”. They recognize the broader landscape for communications services, but more importantly, how newer technologies have changed the way we communicate, and with that, the emergence of new services and business models.
"...newer technologies have changed the way we communicate..."
On a basic business level, telcos have needed to evolve simply because there is little to no growth in legacy telephony. With the advent of VoIP, prices keep falling, the long-distance business is gone, and with telephony reduced to a commodity-based data application, there is little opportunity for service innovation. Furthermore, the landline business that legacy telcos are built on is in sunset mode, and most forms of voice communication no longer require the capital-intensive legacy networks that have driven the telco business for decades.
No telco can survive in this environment, and out of necessity, they are in the process of becoming techcos. To explain, a techco is in the business of providing technology-based services, whereas a telco provides only telephony. While telephony is a form of technology, it’s the only service provided by a le telco, and that just doesn’t align with the needs of businesses today.
The transition from telco to techco isn’t a simple matter of fine-tuning and bolting on new technologies. Telcos are actually pretty good at modernizing, even if not always by choice. Many were late migrating from TDM to IP, but clearly, there’s no going back to the PSTN now. With the shift from fixed line to mobile, many have gotten into the wireless business, and even satellite. They have even adapted to being in the data business, building out data centers and becoming connectivity providers.
"The transition from telco to techco isn’t a simple matter of fine-tuning and bolting on new technologies."
All of these moves were necessary, but are largely about modernization. They allow telcos to keep pace with change, but they are no longer the drivers of change. Doing that requires a fundamental transformation that is built around technology – digital technology in particular – and not telephony.
As everything we do shifts from analog to digital, technology becomes the driver of everything, and that’s what digital transformation is about. Brand engagement is now about digital experiences, customer service is becoming based on digital channels, businesses serve to support the digital economy, etc.
"Brand engagement is now about digital experiences..."
With digital being the common denominator for technologies used for communication – and pretty much everything else – the transformation from telco to techco must be digital as well. This has not been the lens through which telco business leaders have viewed the world, but it must be for a techco.
Without oversimplifying things, there are three core technologies and trends that telcos must embrace to become techcos. Each is really a meta trend that applies to all businesses, so it’s not unique to telcos. However, to evolve beyond telephony, they are the building blocks for telcos to remain competitive in today’s digital world.
This may seem like an understatement in 2025, but legacy telcos still have a large installed base of physical infrastructure to support the PSTN. Purpose-built networks are great for their intended purpose, but they have limited adaptability for new services, and even less for integrating with other networks, platforms, systems, etc. Aside from being expensive to build and maintain, scaling these networks for today’s volumes would be cost prohibitive – even if it were possible to retrofit them for data traffic.
Cloud is the antithesis of all these shortcomings, and telcos have been moving in this direction for years. PSTN will still be with us for some time, but all the new investment is going into data center infrastructure to support cloud services. Compared to the hyperscalers – MSFT, Google, Amazon, etc. – telcos were late to the cloud, and to become a techco, this must remain a top priority.
As noted earlier, with the ongoing decline of their landline business, telcos have needed to become mobile providers. This was somewhat true when mobility was only about cellular telephony and largely a luxury, but it’s absolutely true now that mobility has almost entirely supplanted landline, and is mainly about data services, not telephony.
Mobility is a prime example of technology evolution, where earlier generations – 2G GSM, 3G, 4G – were primarily about telephony – but with 5G and beyond – the focus is data. Not just faster speeds, but capabilities to support entirely new services – digital services. Telcos can still make good money selling voice and data plans, but 5G enables the next generation of offerings that today’s digital consumers and digital businesses need. You can’t get there being a telco, other than being a connectivity provider.
This is the greatest meta trend of them all, as it transcends everything – not just technology evolution, but our everyday lives. No technology has ever had this impact, and telcos must embrace AI the way everyone else has. AI is especially important for telcos because it’s transformational by nature. The process of becoming a techno is also transformational, and by extension, telcos will need transformational capabilities, and that’s what AI provides.
Part of being transformational is the ability to impact every aspect of the business. Internally, AI will be essential to manage networks and optimize operations through automation and self-healing networks. As noted with cloud, the scale needed to manage today’s data volumes can only be handled with AI. Externally, AI will make every application and service smarter, and hence more valuable to customers, making this a key driver of future revenues.
The above three technologies reflect how technology in general is evolving, all of which is in the service of building a digital economy. Legacy telcos were a key driver of the analog economy, where telephony was the most important communications tool. That time has passed, and the world of digital services and communications tools is largely the domain of hyperscalers, mainly because they are natively cloud-based. If telcos do not evolve along this path, their core offerings will eventually be subsumed by hyperscalers, leaving them on the outside looking in.
Change is not easy, especially for large service providers, and for as long as some have already been on their techco journey, the process will take years. Large telcos are not known for their agility and with the rapid pace of technology change – especially AI – this journey will be challenging. In terms of business strategy, the best response to this will be developing an ecosystem of digital technology partners.
"...the best response to this will be developing an ecosystem of digital technology partners."
In some cases, this will mean partnering with best-of-breed partners, both established and emerging. Other times, it will be necessary to partner with hyperscalers, perhaps as co-optition, where both parties stand to benefit. Either way, business leaders need to think about ecosystems in fluid terms, where it’s constantly evolving. This approach is key for any techco, as innovation happens too quickly in the digital world to do everything in-house.
Business focus is another success factor for becoming a techco. The mindset from being a monopoly must change completely to that of one in a crowded, competitive market. Under the protection of regulation, telcos only needed to be concerned about optimizing return on capital for the PSTN. Customers had no other options, making this a seller’s market with inelastic demand.
That was a dream scenario for a utility, but now a nightmare in the digital economy. This world is about the economics of abundance and endless choice for buyers. The only way to compete here is to be customer-centric, and this is core to how techcos operate. This gives rise to a different set of business drivers, such as innovation and creating new forms of value for customers.
Since much of this boils down to revenues, here are some examples of what those new offerings and services could be:
It may not be realistic for techcos to be everything to everyone, but if they don’t evolve from the legacy model of telecom, they won’t be anything to anybody. All large carriers are on this path now, and while there are no guarantees of success, at least the techco model provides a framework that aligns with the technologies driving our digital economy.
"...the techco model provides a framework that aligns with the technologies driving our digital economy."
By recognizing that their greatest asset today is their customer base – and not their legacy networks – the techco transition gives them a better than fighting chance for success. There are no barriers to adoption for the key technologies – cloud, AI and 5G – and by taking a customer-first approach to value creation as a techco, carriers can once again put their businesses in a leadership position, this time for digital services, and in ways they could never dream possible as a telco.
As Principal of J Arnold & Associates, Jon is an independent research analyst providing thought leadership and go-to-market counsel with a focus on the business-level impact of disruptive communications technologies.
