AI series: who will be the GenAI winners and losers in the TMT industry?

Paul Jevons:

Hello and welcome to this Analysys Mason podcast series dedicated to the topic of artificial intelligence. My name is Paul Jevons, and I'm a Director at Analysys Mason. During this series of podcasts, I'll be joined by business leaders from across the TMT landscape to hear their thoughts and gather their insights on AI. And we'll be exploring what it means to them, their organisation and the industry.

Today I am delighted to be joined by Tom Rebbeck, who is a research Partner here at Analysys Mason. We're going to be talking some more about GenAI and its potential impact on the telecoms sector, specifically looking at who the winners and losers from GenAI could be when we look at the market. So welcome, Tom.

Tom Rebbeck:

Thanks, Paul.

Overview of GenAI scenarios in the telecoms sector

Paul Jevons:

So, Tom, you and some others at Analysys Mason have come up with three scenarios for GenAI and telecoms. And before we get into looking at winners and losers, can you briefly describe those scenarios?

Tom Rebbeck:

Okay, sure. So, the first scenario is called navigator. So, in this one, GenAI it's a supporting tool for existing operations. It's useful, but it's not powerful enough to be completely relied upon and it doesn't change the structure of the operator. So, it just makes players more efficient.

The second scenario we have is pilot. So, in this scenario GenAI is much more powerful. It's a more powerful tool, you can replace large teams within an operator. It is much more radical than the navigator scenario because it changes the way operators are run. There is a limitation in this scenario, and that partly due to regulation operators basically stick to connectivity. So largely like they do today.

And then the third scenario we call explorer. So again, GenAI is really powerful. It's able to replace large teams, it changes how an operator works. But in this scenario, there's no restriction to what operators do. And connectivity is bundled with lots of other products and services. So, in the consumer market that might mean things like entertainment, finance, other services, kind of super apps. In the business market, it can be things like cloud, security and other IT services.

Paul Jevons:

And why is it important to think about winners and losers?

Tom Rebbeck:

So the reason we looked at this from the winners and losers angle, and this is obviously based on an article and we'll put the link in, but it wasn't obvious to me how this is going to play out. You can see, depending on the different scenarios, GenAI can be good for some players and bad for others or both at the same time. It is good in some ways and bad in other ways. So there's no simple answer as to these are going to win from GenAI and these players are going to lose. It's a bit more complicated. So I think it's worth exploring how the outlook varies depending on the different scenarios.

Scenario 1: Navigator

Paul Jevons:

Okay, great. Let's take each of these in turns. So let's start with navigator, and who are the winners and losers here?

Tom Rebbeck:

Okay. So if we start off by talking about the winners, and then we can talk about trying to explain the thinking. So navigator, so this is the scenario when GenAI is a supporting tool for existing operators. So in this scenario, the established players, the telecoms operators that we're familiar with today, the AT&Ts, DTs, Telefónicas and so on, they all do well. They can benefit from all of the improved efficiencies of GenAI, but they're still helped by all of their existing strengths, all of their assets, their customer base, their reach and so on. As I mentioned before, GenAI means they can do everything a bit better, but it's not a radical reworking of the sector or reworking of their organisations. That's not to say that it won't have a big impact. So some teams could be much reduced in size, so the obvious example is customer service. And you could easily imagine those customer service teams being cut by 25%, maybe more. So the established players would need to make changes to the way that they run, but it's not a radical overhaul to them or their structures.

So the first scenario, the established players are the best placed to take advantage, and all other players, kind of new entrants or start-ups, or MVNOs are in a weaker position.

Scenario 2: Pilot

Paul Jevons:

And so looking at the next scenario, pilot, who does this scenario really favour?

Tom Rebbeck:

Okay. So pilot, this is the one where it's more radical and GenAI can take over lots of the operations within an operator. So the winners here would be the nimble asset-light players, that could be MVNOs, possibly it could be operator sub-brands, it could be start-ups, it could be new players. All of them would be well-positioned. So they could use GenAI to provide all of the services that we'd expect from a telecoms operator, but they don't have any of the legacy baggage. They don't have any of the stores or the 1000 people working in contact centres. And then the flip side of that is obviously the established operators, they've got all of their existing structures and their legacy operations and so on. And that can prove a barrier to change. They're slower to take advantage of these developments in the market. And a big part of this is around price. So as I said before in pilot, the focus is really on providing connectivity. So the players that can offer the lowest price, it's very much a price-focused market, so the players who can offer the lowest price are going to be the ones who are best placed, and the ones with the lowest cost base are going to be those start-ups.

Paul Jevons:

Okay. And interestingly, that's consistent with something we've heard from other speakers and in particular, Microsoft who highlighted the fact that almost a general principle of AI is its ability to help smaller companies behave and act like bigger companies without all the baggage and the legacy. Particularly if they're not an asset-intensive part of the business, they can actually respond quicker to opportunities and AI can fill the gap in terms of resource and bandwidth that they may have struggled with in the past.

Microsoft highlighted the fact that almost a general principle of AI is its ability to help smaller companies behave and act like bigger companies without all the baggage and the legacy. – Paul Jevons

Tom Rebbeck:

Yeah, and I think you can see how this one would link up with other trends that we're seeing in the market anyhow. So this move to greater use of wholesale networks, so you don't necessarily have to build your own mobile or fixed network, so you can take advantage of that. Distribution particularly in the mobile market has been important in the past. We're moving to eSIM, we're already seeing some eSIM players come along. So that sort of simple distribution of SIM cards has been an issue. They don't have any of that with eSIM players. And then all of the other issues around, if you were going to start up a mobile operator 10, 15 years ago, you'd have to have literally hundreds of people in a call centre. Now if you can get rid of all of that because of GenAI, that's a massive barrier to entry that's gone. The same around marketing, the same around stores. All of these of kind of barriers that existed before, you can imagine you can think of ways that GenAI and these other trends how they play together and help new players, these start-up players.

Scenario 3: Explorer

Paul Jevons:

That's really interesting. But let's move on to the final scenario, explorer, who does well there and why?

Tom Rebbeck:

So the key thing to think about in this scenario is that telecoms isn't just about connectivity, but it gets bundled in with a whole bunch of other services. So kind of sort of super app services, entertainment services, video, gaming, all that kind of thing. So the winners are going to be the companies that are able to bundle multiple services together. So that could be the big technology companies. You could imagine like an Amazon, it already has the Prime bundle. You could imagine it adding connectivity into that monthly Prime fee. Uber could be another one. All of those kinds of big tech players who have lots of other assets that they can bundle alongside connectivity.

Now, there may be some telecoms operators who can benefit from that, say the ones that already have ambitions to be a super app. So companies like Jio where they're looking at a much broader range of services of again TV, music, games, payments and so on in the consumer space.

But there's also a business angle to this as well, you can think of the business operators who already are well-established in cloud and security and other services, they would bundle connectivity into that. And in a sense that's not too far away from where they are already.

The losers in this market would be the established operators who can't make that change, who don't have the other assets to bundle alongside connectivity. Again, they were stuck with that legacy cost base and they don't have all of these new services, like video or super apps or whatever to bundle together.

Paul Jevons: 

Okay. Thanks very much. And so in terms of the telecoms sector, how should they use the research that you and the team have done and how can it help them with their thinking about GenAI?

Tom Rebbeck:

So when we look at it, telecoms operators, they're already playing around with lots of GenAI experiments. Most of those are internal, so they're kind of internal chatbots for HR policies or whatever. So we're seeing lots of operators play around with relatively limited narrow experiments. But longer term, these operators can't afford to be too narrow in their thinking, they have to be open to a wide range of possibilities and then how to respond to them.

So as we've said in our various bits and pieces of research, it's not going to be the telecoms operators that dictate which of these scenarios occurs. It's going to be largely out of their hands, but they will have to respond to whatever's going on. So it may be, let's say the second scenario or something that looks a bit like that second scenario, is the way that the market's developing; it's purely on cost. The really flexible operators are the ones who are able to get rid of their legacy costs and respond to these start-ups. So it may be in that scenario that the established players have to put more emphasis on their sub-brands and thinking how their MVNO-type brands, how they can push them more and then how they can take their cost out of their legacy businesses.

So obviously these three scenarios, the world won't occur like these three scenarios. It's just kind of a guess at how they could occur. But I think it comes back to that main point of operators. The typical way of thinking about a strategy is you have one strategy and you try and achieve that. Now with GenAI, there's so much going on. It opens so many different possibilities. We can't possibly say with any certainty what's going to happen or how the market's going to develop. So they have to keep an open mind, which goes back to the point at the beginning. It's not obvious who the winners and losers are going to be, so they have to be flexible if the market develops in way that's not favourable to them.

The typical way of thinking about a strategy is you have one strategy and you try and achieve that. Now with GenAI, there's so much going on. It opens so many different possibilities. – Tom Rebbeck

Paul Jevons:

Okay, thanks very much. And Tom, thank you very much for your contribution and your time today.

Tom Rebbeck:

Thanks, Paul.

Paul Jevons:

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