Whatever the Eventual Impact, Telecom Execs Say They are Investing in AI

With the caveat that early reported interests, tests, trials and investments in new technology such as artificial intelligence--especially those deemed important--will overstate the degree of actual deployment, telecommunications professionals say they are investing in machine learning, deep learning, generative AI, high-performance computing and digital twins or metaverse at rates that might surprise some observers, according to a survey sponsored by Nvidia. 

source: Nvidia 

Of course, technology investment is pursued in order to obtain some business advantage. According to surveyed professionals, those desired outcomes include better customer experience, productivity enhancements, better network operations cost savings and revenue growth. 

Many respondents report non-zero changes (as would be expected). In terms of inputs, the report says “43 percent of respondents reported an investment of over $1 million in AI.” About seven percent of respondents claimed AI investments in excess of $50 million. 

source: Nvidia 

None of that should come as a surprise, given the attention executives now place on reassuring stakeholders that they are “doing something” about AI. In 2023, AI was mentioned in 394 earnings calls, representing nearly 80 percent of all Fortune 500 companies, according to Stanford University’s Human-Centered AI institute.

Fixed Wireless Platforms Make Sense for Rural Markets--Including the U.S.

It might seem obvious that fixed wireless access--though important in many countries where fixed network infrastructure is hard to create and sustain--would also be important in markets such as the United States. 

But fixed wireless grew by about 6.6 percent from the fourth quarter of 2022 to the fourth quarter of 2023, significantly led by  “healthy growth rates in the United States, especially by T-Mobile and Verizon,” say researchers at Point Topic.

source: Point Topic 

“We expect this trend to persist due to demand for connectivity in remote and underserved areas where wired broadband infrastructure is difficult to deploy, and due to some consumers cord-cutting their broadband access services,” Point Topic says. 

What bears repeating is the largely-rural or non-populated character of most of the United States. Most people live on just six percent of the U.S. land surface, according to the USDA. 

And about 94 percent of the land surface is unsettled or lightly populated, including mountains, rangeland, cropland and forests, according to the U.S. Department of Agriculture. 

The result is that fixed networks are expensive across most of the land surface, which is rural, sparsely populated or largely unpopulated. So fixed wireless makes lots of sense.  

Disintermediation Does Not Always Help OEMs

“Disintermediation,” the removal of “middle man” or “distribution” stages in a value chain, has been a major outcome of the internet, leading to flatter distribution chains with a new emphasis on “direct to customer” strategies. 

As a rule, that should reduce costs for goods and services suppliers.  Perhaps oddly, that has not been true for parts of the video content industry. You might expect “direct to consumer” video streaming services to provide competition and a substitute product for linear video subscriptions. 

So cable TV and telco linear video subscription businesses arguably are damaged by direct-to-consumer video streaming services, as they are distributors or “middle men” in the value chain.

But it remains unclear whether most direct-to-consumer video streaming services actually benefit so much from the flatter value chains and disintermediation. 

For starters, content owners have traditionally earned affiliate fees from their distribution partners. Disney, for example, has earned about 17 percent of total revenue from affiliate fee payments. Warner Brothers Discovery and Paramount have tended to earn about 21 percent of their total revenues from affiliate fee payments, while NBC (Comcast NBCUniversal has earned about 22 percent.

Revenue Source	Linear Model	Streaming Model	Change in Marketing Cost
Subscription Revenue	High (Bundled with other services)	Variable (Can be higher or lower depending on platform strategy)	Potentially Higher (Need to directly compete for subscribers)
Advertising Revenue	Low (Limited ad inventory)	Variable (Can be a significant source of revenue)	Potentially Higher (Need to build audience and ad platform)
Affiliate Fees	High (Revenue from cable/satellite providers)	Low (Little to no role in streaming model)	Not Applicable

Ironically, cutting out a major part of the distribution chain also has reduced revenue for content owners. 

Nor is it so clear that “direct to consumer” has actually reduced marketing and other distribution costs. Selling direct means building a fulfillment process including retail billing and lots more marketing. 

The point is that disintermediation is "supposed"to reduce costs for supplers of goods and services (original equipment manufacturers). In the case of video content owners, going "direct to consumer" has yet to do so, consistently, if at all.

Cloud Computing Value Might Hinge on Where You Use It

“A stunning 95 percent of European companies in our recent survey say they’re capturing value from cloud, and more than one in three say they intend to have more than half of their workloads on cloud,” say McKinsey consultants Bernardo Betley, associate partner; Hana Dib, associate partner; Bjørnar Jensen,  senior partner and Bernhard Mühlreiter, partner. That’s the good news. 

The bad news? “The vast majority of the value companies have captured, for example, remains in isolated pockets and at subscale,” the consultants also say. 

Some of that might be caused by the way European companies (the subjects of the study) have implemented cloud computing. 

“The focus of their cloud efforts, for example, has been disproportionately on improvements to IT, which generate lower rates of value than improvements to business operations,” McKinsey says. 

Somewhat oddly, “most companies (71 percent) measure it (benefits) in IT operational improvements, 66 percent in IT cost savings, and 63 percent in number of applications on cloud,” McKinsey says. “Only about one in three European companies, however, monitors non-IT outcomes, such as cost savings outside IT (37 percent) or new revenue generation (32 percent).”

That might seem odd for many observers, since those outcomes (cost savings or revenue enhancement) might seem the obvious way to measure outcomes. “Our research and experience are clear that about two-thirds of the potential value of cloud comes from revenue uplift and cost savings in business operations,” McKinsey says. 

Study Title/Author	Methodology	Findings
"The Business Value of Cloud Computing" by McKinsey & Company (Report) / 2019	Surveyed over 1,500 executives globally	Found that companies with a clear cloud strategy focused on business outcomes achieved 3x the return on investment (ROI) compared to those with a technology-centric approach.
"Cloud ROI: Why Businesses Need a Strategic Approach" by Forrester Research (Report) / 2021	Analyzed data from cloud adoption projects	Concluded that companies with a well-defined cloud strategy focused on business goals like agility and innovation saw a 20% increase in revenue growth compared to those with a tactical, workload-centric approach.
"Unlocking the Economic Advantage of Cloud Computing" by Accenture (Report) / 2022	Examined the impact of cloud on various industries	Identified that companies using cloud to drive innovation and customer experience saw a 15% increase in customer satisfaction and a 10% improvement in operational efficiency.
"Cloud Adoption and Firm Performance: A Meta-Analysis" by Florian Schreibert et al. (Journal Article) /2020	Analyzed 42 prior academic studies on cloud adoption	Concluded that while workload shifts can lead to some performance improvements, the most significant benefits are seen when cloud adoption focuses on strategic goals like cost reduction, efficiency, and innovation.
"The Cloud Dividend: How Businesses Benefit from Cloud Computing" by Accenture (Report) /2022	Analyzed financial data from over 10,000 companies	Identified a strong correlation between effective cloud adoption strategies focused on business outcomes and improved financial performance.

“Compared to U.S. companies, about five times more European companies are still pursuing an IT-led cloud migration, with significant emphasis on lifting and shifting existing workloads,” the consultants say. 

Costs of Creating Machine Learning Models is Up Sharply

With the caveat that we must be careful about making linear extrapolations into the future, training costs of state-of-the-art AI models have reached unprecedented levels, according to Stanford University’s Human-Centered Artificial Intelligence institute. 

Where OpenAI’s GPT-4 used an estimated $78 million worth of compute to train, Google’s Gemini Ultra cost $191 million for compute, HAI estimates. 

source: Stanford University Human-Centered AI report

HAI estimates suggest that model training costs have significantly increased. For example, in 2017,

the original Transformer model, which introduced the architecture that underpins virtually every modern

LLM, cost around $900 to train.

RoBERTa Large, released in 2019, which achieved state-of-the-art results on many canonical comprehension benchmarks like SQuAD and GLUE, cost around $160,000 to train.

Fast-forward to 2023, and training costs for OpenAI’s GPT-4 and Google’s Gemini Ultra are estimated to be around $78 million and $191 million, respectively, according to HAI. 

 

source: Stanford University Human-Centered AI report

AI Might Not be in an Investment Bubble, but Generative AI Might Be

At least as measured by new private investment in artificial intelligence, the danger of over-investment might be receding, as AI investment levels peaked in 2021 and appear to be declining, according to Stanford University’s Human-Centered AI institute. 

source: Stanford University Human-Centered AI institute 

On the other hand, investments clearly have shifted to generative AI. While overall AI private investment decreased in 2023, funding for generative AI sharply increased. In 2023, the sector attracted $25.2 billion, nearly nine times the investment of 2022 and about 30 times the amount from 2019. 

Generative AI accounted for over a quarter of all AI-related private investment in 2023.

source: Stanford University Human-Centered AI institute 

The most commonly adopted AI use case by function among surveyed businesses in 2023 was contact-center automation (26 percent), followed by personalization (23 percent), customer acquisition (22 percent), and AI-based enhancements of products (22 percent), according to research by McKinsey. 

Where Will AI Prove an Existential Threat to Whole Industries?

Right now, we all speculate about the potential changes artificial intelligence might bring, as well. Predictions range from the existential (CEO jobs will go away) to the mundane (how we write emails will be more automated).

But it is not the technology we need to watch and understand, as such. It is what the technology enables. We might agree that spreadsheets, word processing, presentation software, personal computers or smartphones have had an impact on work and learning, without also arguing those information technologies fundamentally changed the nature of work or most business models.

But sometimes, new IT has reshape whole industries.

If you worked in any managerial position in U.S. ad-supported media back in 1996, you are well aware of the huge shifts that has taken place in use of ad venues. Print media, linear video and radio have taken huge hits, while online digital venues have skyrocketed. 

Many--perhaps most--of the business issues facing managers of ad-supported assets flow directly from those shifts in activity and venues. 

Source: Gemini

Put simply, digital now claims up to 82 percent of all U.S. ad placements and revenue. Print has declined from 42 percent to less than three percent. Linear video dropped from 38 percent to 16 percent. Radio dipped from 10 percent to half a percent. 

Channel	1996 (Billions)	1996 (%)	2023 (Billions)	2023 (%)
Print (Newspapers, Magazines)	80.0	42.1%	10.0	2.7%
Linear Video (TV Broadcast, Cable)	72.0	37.9%	60.0	16.2%
Network Radio	10.0	5.3%	2.0	0.5%
Other (Radio Spots, Out-of-Home)	28.0	14.7%	18.0	4.9%
Digital Ads (Search, Social Media, Display)	-	-	300.0	81.7%

When channels shift that much, the appellation "disruptive" certainly applies. While the role of advertising in business did not change, almost everything else about how it is used, when and where, did change. 

We can't yet know how extensive the changes brought by AI will be, in each industry, job role and functions. But existential change is conceivable. Virtually all prior general-purpose technologies (such as electricity, the internet, mass propduction, the internal combusion engine) were existential for some industries and jobs. Some things simply went away. 

And virtually all enabled importnat new possibilities based on the extending of human muscle, senses or brain power. 

The internet had an existential impact on legacy ad-suported businesses. AI could have similar impact on at least some industries.