The telecoms industry has been central to the global economy from its earliest days in the telegraph business, today in the digital era, the telco role is no less central. Telecom operators provide critical infrastructure that supports digital services and experiences that underpin the modern economy. Consumers rely more than ever on digital solutions in their everyday lives while enterprise across industry and borders have realized that digital transformation is necessary for continued success.

With data carriage becoming increasingly commoditized and web scale companies providing competing communications services in over-the-top (OTT) models, carrier revenues have been stagnant, despite continually rising traffic.

Networking equipment vendors such as Huawei are moving to help their operator clients transform their businesses to develop new revenue streams and reduce costs by focusing on network modernization, AI-driven automation and new service models. Some more forward-looking operators have already seen the writing on the wall and elected to transform their businesses to expand scope from traditional telecoms services to include new digital technology-based services.

Telco to tech-co transformation is a trend

This telco to tech-co transformation is a trend among global leading operators with companies like NTT, Telefonica, Orange and SingTel, among others, each forging their digital technology company strategies.

For telcos, the transition from a legacy communication network business to a digital technology company is complex and involves not only the introduction of new technology services, but equally investment into modernized infrastructure. While telcos may be expanding the scope of their target markets and services, their key differentiator will remain the network. However, legacy networks are not capable of delivering the performance or dynamic services required of new digital services. Therefore, while telcos will need to invest in developing new capabilities in areas like IT and software, they will equally need to invest in modernizing their networks to keep their competitive advantage.

Telefonica sets an example

Telefonica is an example of a telco transformation that is embracing network modernization. The company is currently greatly expanding its network capacity. The company is committed to expanding its fiber investments in both Europe and Latin America. Through joint ventures in its op-co markets, the company now is the leading fiber broadband player in both regions with over 86 million premises passed supporting a minimum of 100Mbps connections.

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However, the company is aiming higher. It is set to upgrade its fiber footprint to the XGS-PON standard by 2026. This is capable of delivering 10Gbps symmetrical services (same download and upload bitrate). This investment will not only support Telefonica’s efforts to deliver highspeed fiber to consumers and enterprise, but also enable a “gigaverse” transformation for their mobile networks as well.

Fiber backhaul to mobile base stations is increasingly important as data traffic continues to balloon. Fiber investments will allow Telefonica to offload larger amounts of data, with lower latency, enabling next generation services like edge compute. Telefonica currently has 5G live across four of its operating markets (UK, Spain, Germany and Brazil) and is rapidly moving towards standalone 5G, which will provide guaranteed network experiences and market differentiation. The investments in infrastructure have resulted in strong growth for Telefonica in a time when most operator revenues have been stagnant. Its fiber access business grew 19% year over year in 1H 2022, while post-paid mobile grew 6% in the same period.