Digital transformation efforts remain a significant focus of large telecommunication operators that want to generate more revenues from their 5G network investments, but that push is being impacted by macroeconomic challenges and increased parsing out of the impact of new technologies like artificial intelligence (AI), machine learning (ML) and automation.

Michael Soper, senior analyst for Technology Business Research (TBR), in a recent webinar said that these efforts have hit stalling headwinds from various angles.

“We’ve kind of seen a pause in spend on these due to some macroeconomic issues that are going on in the market,” Soper said, adding that these include “economic stagflation, interest rate normalization, which has restricted access to capital.”

Soper noted that this restriction has mostly impacted smaller communication service providers (CSPs) that have found it harder to access “cheap capital.” This “is hindering their ability to upgrade their networks on a timely basis and so, that in turn, is hurting their spend on [telecom infrastructure services] and causing the decline in the market.”

This financial squeeze impacting second-tier operators has rippled through the market.

Dish Network, which is now under the stewardship of sister company EchoStar, has been struggling to right its financial position. This includes an intense focus on securing new financing to pay down upcoming debt obligations that were compounded by its need to secure funds at an alarmingly high interest rate.

Regional operator UScellular gave up all together, recently announcing it would be acquired by larger rival T-Mobile US in a deal valued at up to $4.4 billion.

Soper did note that this market upheaval could result in operators rationalizing or decommissioning some of their legacy infrastructure, which could also delay spending on digital transformation efforts for a period of time.

“They’ll start ramping up again, we think in 2025, as the CSPs kind of get their feet under them after managing cash on a more tightly basis in 2024,” Soper said.

AI, ML and automation to impact digital transformation That investment flow is expected to surge toward new technologies, with Soper pointing to expectations of “them investing more heavily in AI over the course of the forecast period, integrating AI into their operations, which would be part of digital transformation-related projects.”

Soper said this will include spending with IT services and system integration firms “trying to increasingly leverage that AI, ML and automation to their own internal spend.”

This AI trend was highlighted by a recent Omdia ranking of the world’s telecom digital transformation leaders, which pointed to AI-related efforts by those market leaders.

That report ranked China Mobile, NTT DoCoMo and SK Telecom as having made the most progress toward their digital transformation goals among the world’s dozen largest operators. China Mobile was touted for its capabilities in AI, big data and security, while SK Telecom was cited for its leadership in driving telecom AI initiatives across the ecosystem.

Those AI and digital transformation efforts are also expected to power what Soper said are “more efficient network architectures,” which could also impact overall network spending.

“New network architectures that employ cloud virtualization, more white box hardware, things like open [virtualized radio access network], this is going to have an increasing negative impact on maintenance spend during the forecast period, and so this is going to cause the declines within this market to intensify over time,” Soper said.