TMT predictions 2026: operators are at a crossroads

Alessandro Ravagnolo (00:05)

Hello everyone, my name is Alessandro Ravagnolo and I will be your host today. I will be joined by my colleague Caroline Gabriel. Say hi, Caroline.

Caroline Gabriel (00:14)

Hi everyone, thanks for joining.

Alessandro Ravagnolo (00:15)

And Charles Murray.

Charles Murray (00:16)

Hi, Ale.

Alessandro Ravagnolo (00:17)

Hopefully it’s going to be the three of us, maybe a couple of cats that will show up in the background at some point. Let’s see. So this is not going to be a show for dog lovers, I presume. We’re going to spend something like 10 to 15 minutes together now talking about various topics. I hope that you’re going to enjoy spending time with us during your coffee break or your commute or whatever you’re doing at the moment. The topic we’re going to cover today, of course, is AI, which means artificial intelligence, but we’re going to cover it from a specific angle. And this angle is what it means for investment from communication service providers and what the impact is on critical infrastructure. Telcos have big decisions to take in 2026, right? And big decisions that might impact strategy going forward and what telcos want to be going forward. This is part of our bigger set of predictions for 2026 that we’re publishing at Analysys Mason. All these predictions are published on our website, and a link will be available in the show notes. But without further ado, Caroline, do you want to provide a bit of an introduction and the punchline of your prediction for 2026?

Caroline Gabriel (01:43)

Sure, thanks Ale. Yes, I’m Caroline Gabriel. I’m a Research Partner at Analysys Mason. I head up all the research work that we do on networks and cloud, so really focusing on communication infrastructure across the telecoms value chain. In that context, we are predicting that some telecom operators are going to battle for position in the infrastructure value chain as their infrastructure capex becomes dwarfed by spending on AI, a lot of which will be coming from other parties. So they’re facing a key decision point in 2026 about what their future investment strategy should be.

Alessandro Ravagnolo (02:15)

That’s great. Charles, what are you covering today?

Charles Murray (02:19)

So following the merger between Vodafone and Three in the UK, the four-to-three debate is yet again back on the table. We’re going to discuss the impact and who’s potentially likely to go from a four mobile operator market to a three mobile operator market in Europe.

Alessandro Ravagnolo (02:35)

Thank you. Sizzling hot topics today, as you can see. So Caroline, let me start with a question for you. Artificial intelligence means investment, and we’re talking about a level of capex we’ve never really seen before, or at least not since industries like rail started deploying critical infrastructure that’s available every day to all of us. This investment touches on software, chipsets, but also all the enabling infrastructure that is needed to run AI — from real estate and data centres through to power. There’s a question about what this means for different players across different industries and what the opportunities are for them. This is particularly important for telcos. What are the opportunities that telcos can harness from AI, and what is the right to play? How can they marry the AI strategies they’re developing with their traditional role as connectivity businesses?

Caroline Gabriel (03:50)

Yeah, exactly, Ale. And I think you’ve got to the heart of the matter with that last sentence. It’s a question of balance — marrying a forward-looking strategy with a lot of AI in it while carrying on the traditional business, which for the vast majority of operators still represents more than 90% of revenue. So there’s a lot at stake on either side. I don’t think there’s a right answer. As I said in my introduction, inevitably telcos’ share of investment — the capex and therefore the opportunity in communications infrastructure — is going to decline as a percentage, although the total pie is getting huge because of AI and other factors. At some points in the past, telcos have been responsible for over 40% of investment in public communication infrastructure. We’re looking at that falling below a third in 2026 and then continuing to fall, because other players are joining the market and because the focus of investment is shifting towards data centres, GPUs and other big-ticket items that support AI. So I don’t think there’s a right answer, but telcos have to make key decisions in 2026. This market is changing quickly and growing quickly, and they need to understand where their opportunities may be. Some operators can choose to broaden their role beyond their own networks — their access networks, transport networks and the sites on which that infrastructure sits — into areas such as cloud, data centres and edge computing. With AI, that becomes a much bigger bet. Operators choosing this route will need to accept very high levels of spending, a smaller share of the overall investment pie, and the need to work with different partners and co-investors. For many telcos, we believe they will back away from that. But even then, they still have choices to make. If they focus on classic telco network infrastructure, they need to decide what they need to own and where they’re happy to use someone else’s infrastructure or share investment. Some may focus on access networks and ensuring quality. Others may invest selectively in infrastructure that supports AI expansion, such as data-centre interconnect or edge-based data centres, where investment requirements are lower than in GPU-heavy facilities. Others will defocus on infrastructure altogether, moving towards sharing or wholesale models, or even delayering and spinning off infrastructure businesses. We’ve seen this already with passive infrastructure like mobile towers, and increasingly with active networks. This is the opposite approach to the small group of operators we expect to become significant players in AI-driven communications infrastructure.

Alessandro Ravagnolo (07:19)

So does that mean that in 2026 we’re going to see a clear split between telcos that decide to play in the AI infrastructure space and those that don’t, with infrastructure strategy following accordingly?

Caroline Gabriel (07:39)

Absolutely.

Alessandro Ravagnolo (07:39)

I’m very sympathetic to telco management because they’re under pressure to improve returns on capital invested, with pressure from markets and shareholders. I understand why they face this decision: can they find new avenues of growth thanks to AI, and do they want to play in that market? But if they decide not to play in AI infrastructure, what does that mean? Where do they invest instead?

Caroline Gabriel (08:22)

That’s a key question, and we think a majority of telcos won’t play directly in AI infrastructure. But they’ll still want to invest. In some cases, that may free up investment for other areas. They can still play in AI by investing in software platforms, moving more heavily into enterprise services, or deploying AI within their own networks to improve quality and responsiveness. Others will remain focused on business as usual — preserving cash, margin and revenue from the core business — investing in network quality, marketing and orchestration systems. There’s also a group that doesn’t see much growth in core telecoms and may use freed-up capital to move into adjacent sectors through acquisitions — utilities, energy, financial services — depending on their market.

Alessandro Ravagnolo (09:59)

But we need to address the elephant in the room: size and scale. Charles, we all know this matters.

Charles Murray (10:10)

Indeed. Continuing to invest in radio and core networks is a challenge, particularly in the 5G era where the cost is so great. In Europe especially, there’s huge pressure on roll-out. One way to improve quality and returns is consolidation — less duplication of infrastructure. The Vodafone–Three merger in the UK is a clear example. Their strategy involved committing around GBP11 billion of investment over eight years, producing a much larger network while forcing remaining competitors to respond. That mix of efficiency, synergies and renewed investment is likely the winning strategy for four-to-three mergers.

Alessandro Ravagnolo (11:32)

So we’re talking about consolidation to achieve scale and efficiency, but remedies may require additional network investment, limiting available capital.

Charles Murray (11:48)

Indeed. It’s a balance between additional investment and the synergies generated. Larger networks can be more value-enhancing in the long term. We expect strong interest in markets like France, Italy, Spain and Germany. We think France and Italy are most likely to see deals progress next, though regulatory approval will be the real test.

Alessandro Ravagnolo (12:44)

Which market is your bet?

Charles Murray (12:46)

Read the prediction — but we think France is most likely, followed by Italy. There’s already been an offer for SFR in France, which was rejected, but the shareholding situation may lead to a revised offer under pressure from debt holders. Italy also has an obvious tie-up between WindTre and Iliad.

Alessandro Ravagnolo (13:36)

It’s striking to compare European telco valuations with AI and cloud players. Is consolidation only about mobile, or could we see international consolidation?

Charles Murray (14:12)

We’ll see further consolidation in fixed networks, particularly fibre. Internationally, it’s harder. Language barriers, regulation and operational complexity make pan-European consumer players unlikely, unlike the US model.

Alessandro Ravagnolo (15:09)

Caroline, to wrap up, what’s your key recommendation for telcos in 2026?

Caroline Gabriel (15:19)

They need to address these decision points urgently. All strategies may be valid, but each leads to major structural decisions. What they can’t do is sit in the middle — that just wastes capex and weakens their position.

Alessandro Ravagnolo (15:59)

You cannot have both.

Caroline Gabriel (16:00)

Exactly.

Alessandro Ravagnolo (16:01)

Charles, your recommendation?

Charles Murray (16:09)

If you’re pursuing consolidation, regulatory strategy must be central. It’s not a separate workstream — it’s fundamental to the business case, technical design and overall merger process.

Alessandro Ravagnolo (16:48)

Thank you. These are big topics and we could go on much longer, but it’s time to say goodbye. Thank you for joining us. If you want to hear more about these predictions, check the show notes for links to more content from Caroline and Charles, and a wealth of additional material on our website. Please do subscribe to our channels, and we look forward to hearing from you in the future. Have a very good day.