Sustainable telco ROI has to be about more than buying new kit and hoping for the best

The firm suggested 10 tactics to help cope, which ranged from looking to M&A activity to leveraging analytics to an agile talent strategy. Sensible enough and nothing to break the bank—but then it also recommended investing in distributed computing, because:

“Enterprises need intelligence in their network at the level where the data is collected, locally, at the edge of the network. Edge computing reduces response times and changes operations at a local level [but] requires new IT architectures to ensure security and resilience of operations. Investing in the edge ecosystem will help streamline processes and improve customer experiences.”

Invest, invest, invest. Is that all I gotta do?

We’re less interested if anyone took this advice than the fact that when in doubt, the default is always to invest in more stuff. Another storied consultancy, McKinsey, only last month advised “executives”  that “success will hinge on identifying high-impact domains” where they need to be “investing in the necessary talent and infrastructure.”

Well, sure. Any economist will tell you there are strong economic principles, though not a single "law", why companies must invest to generate revenue, stay competitive, and grow; for a company to produce goods or services, it must invest in these productive assets.

But our imaginary economist would also immediately point out that companies don’t invest money for no reason; they have to get a return on that, i.e., ROI (return on investment).

We need hardly point out that ROI is a key metric used to evaluate whether an investment leads to more income or cost savings. If ROI is consistently positive and higher than the cost of capital, the company becomes more profitable and valuable over time; if not, well… it’s a waste.

Being able to tell the difference is what will make a company profitable or not. Huawei’s chairman Eric Xu is a very smart guy, and his company is profitable ($8.5bn’s worth for 2024). But he makes that margin by persuading the market to buy stuff, so when he used his keynote at MWC in Shanghai to suggest four ways to “accelerate industry growth”, we have to assume there’s a teeny-tiny bit of an agenda here.

That’s not to say Xu’s ideas are worthless; for the record, they are to serve emerging user segments such as delivery riders and livestreamers (groups with higher-than-average data and voice usage), push for more HD video, and look to sell AI and FTTR/Fibre to the room to more SMBs. 

But a good chunk of that can, surprise surprise, only be realised (a bit like EY’s edge recommendation) by buying yet more kit, but then persuading customers to spend on the great mobile services we want to run on them. Case in point: Xu emphasized the need to extend 5G connectivity to vehicles, unlocking a wave of connected-car services, but he also had to acknowledge hurdles remain (“Carmakers are reluctant to adopt 5G due to high intellectual property costs and expensive T-Boxes”).

The basis for sustainable telco ROI has to be on optimised business, not Gold Rushes

Telling the telecom sector to invest more while it’s still trying to do that—selling new things to customers on behalf of the manufacturers (as it can feel like, on bad final quarter days)—for 5G is a little much. Voice and basic data services have become commoditised, making it difficult to raise prices. To quote yet another third party, PwC, global industry revenues will rise at a compound annual growth rate of only 2.9% through 2028, below the projected rate of inflation, at which point total revenues will edge up to $1.3 trillion.

If you’re making less than inflation, you’re not making money, and we don’t need our economist chum to tell us that. GSMA says mobile CAPEX is expected to reach $1.5 trillion for the period 2023–2030, while telcos are expected to recoup “only a fraction” of their 5G infrastructure investments if they continue their current monetisation strategies (PwC again).

That firm also warns that to get back to sustainable profit, the whole industry must reinvent how it creates, delivers and captures value. Guess what: that involves, yet again, spending more money, on things like “strategic investments” in AI, fixed connectivity, digital infrastructure. 

While the advice also suggests working with investors and regulators to unlock growth—which we’d put down as in the same class as that 2022 advice from EY on thinking about mergers and other classical economics ways of paring down cost—it’s hard to see a space for perhaps more cautious voices in all this.

Bottom line: it’s all very well asking operators to spend more, but many are constrained. They have already spent billions on 5G, which may not have delivered as much as they or their investors hoped. 

Surely, at least for now we should be thinking about doing more with what we have already built out? Why can’t innovation be about smart reuse or ‘brownfield’ than always, always, always spending on figurative ‘greenfield’? 

Maybe a bit of that kind of thinking would deliver enough ROI to then warrant a look at all that amazing but so far unproven edge… though we also note, with something of a shake of a head, that for some reason the sector has also decided to spend $17 billion on AI “network security”. 

Is that because someone told you to? Or because everyone else is?