For years telco execs and thought leaders have talked about the importance of diversification for the sector. It was earmarked as the solution to their fierce competition and shrinking margins. Now AI has become more accessible and viable it’s presented telcos with a massive opportunity to diversify, create new revenue streams, and improve how they engage with customers. Yet, MTN consulting found that capex declined 3.6% last year. And so, I’m astonished, but at the same time not surprised.

If telcos aren’t increasing investment to build capacity now at a time of great opportunity, is it any wonder that customers have become indifferent to their service providers?

Can we really blame customers for holding connectivity services with the same indifference as other utilities such as water or electrics, when they aren’t investing to get better? With capex declining in the AI era, it feels like telcos might be happy with the endless cycle of acquiring customers based on price and wondering why they struggle with low LTV and constant churn.

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Certainly, at times AI can feel like a distraction from a business’s core function. Especially when generative AI solutions like ChatGPT gather headlines and funding rounds without providing genuine use cases. But it doesn’t take too much digging to see so many developers and AI firms building services that have very clear use cases for the sector and will generate significant value – to a business and its customers.

The reality is most telcos haven’t got past the distractions to see the real potential of AI because they undervalue one of their most important commodities – data. On the one hand I can understand. Data can be messy, and it can be hard to extract, make sense of and maintain. Especially if you’re an older operator that has a patchwork of old and new systems. But on the other, I just can’t understand because AI and machine learning has advanced data science so much that it’s easy to find genuine insights. It means we can know more about our customers than ever before. And in knowing more about our customers, what they like and what they value in our services, telcos can start to engage with them in ways that shows they really value them. It will break the cycle of churn and really grow LTV.

Customer insights and data are also the key for diversification for telcos. It’s not just that AI can be used to help improve products, services and experiences for customers. These valuable insights about how people use the internet or browse on their phones while on the go could be a powerful monetisation stream. But it’s more than that. It helps them transition from a traditional business offering an established service, to become a digital business or ecosystem, where all products and services feed into and monetise each other. They become much more like software-as-a-service businesses, where each product stream is highly important to the customer, rather than a traditional telco.

This kind of diversification is common in other sectors. Car manufacturers are investing millions to create their own apps and on-board systems. It’s not just because consumers want this functionality. It’s because it allows them to become unique data centres, to bundle personalised services such as roadside assistance, insurance, or fleet management.

Retailers are branching out too. While the physical department store may be dead, its alive and well online as retailers try to create one-stop shopping destinations. Some, such has Woolworths, Coles or even Kogan.com have branched into telco services – knowing that data will help them across their business lines. Then there’s the biggest of them all, Amazon. There’s a reason why it tried to buy Roomba’s parent company, iRobot and it’s not because robot vacuums are particularly lucrative. It’s data. Buying Roomba would have given Amazon unique insights into its customers’ homes, which it could have used to boost sales and marketing across almost all of its business lines.

For the telcos that have already diversified, particularly those offering enterprise services such as cloud, and business management solutions, AI represents another virtuous circle. Not only is it a new product to offer to customers, it is a big consumer of data and computing power, which customers buy from your ecosystem.

Yes, there’s the challenge of knowing where to start. Integrating AI and data science into operations and your product stack may seem daunting. But the rewards are there! And there are off-the-shelf solutions that can help deliver short-term value while you develop a longer- term strategy.

So, in an era when telcos are undervalued by consumers, and competition for customers and margin is so fierce, now is not the time to recoup capex investments from years gone by. It’s the opposite. Now is the time to act and invest in AI, to improve your products, your customer experience, and your business. Because if you don’t, you’ll get left behind.

This first appeared in the subscription newsletter CommsWire on 21 May 2024.