Investing.com — The global telecom industry is in the early stages of exploring the transformative power of AI, but the potential for the coming years appears high, according to Morgan Stanley (NYSE:).
In a Sunday note, the Wall Street firm revealed that a successful AI implementation could boost the industry’s free cash flow (FCF) margins by 400 basis points and add about $500 billion to its market cap. However, achieving these gains depends on overcoming challenges such as data silos, limited management bandwidth and the fragmented adoption of AI technologies.
The impact of AI in telecom can be divided into four main pillars: cost savings, revenue improvement, CAPEX efficiency and working capital optimization. Each area offers substantial opportunities if barriers to adoption are addressed.
Cost savings are an important opportunity for telecom operators. AI can reduce costs in labor-intensive operations, energy consumption and customer service.
AI-powered energy saving systems also deliver efficiencies of up to 15% in network operations. This progress could result in an average 15% reduction in COGS and OPEX over five years.
On the revenue front, telecom companies are using AI for better customer segmentation and personalization, enabling more effective targeting of products and services. AI tools can help reduce churn and increase average revenue per user (ARPU) by offering tailored solutions at the right time.
Companies like Verizon (NYSE:) specifically report that using AI-driven segmentation and predictive analytics helps retain customers and improve sales conversion. Additionally, some airlines are exploring new revenue streams beyond traditional connectivity, such as edge computing and AI traffic support, although these remain outside Morgan Stanley’s current analysis.
AI also has the potential to optimize CAPEX by improving network planning and maintenance. For example, Digital Twin technology allows providers to simulate network conditions and optimize infrastructure deployment, reducing costs by up to 20%. Predictive maintenance, powered by AI, can prevent system failures and extend the life cycle of network equipment.
Working capital optimization is another area where AI can make a difference. Demand forecasting and fraud detection applications are already helping telecom companies improve their inventory management and reduce bad debts. Advanced AI systems have proven effective in streamlining receivables and minimizing risk, supporting financial stability.
However, the widespread adoption of AI in the telecom sector is still a long-term process. Morgan Stanley emphasizes that “we anticipate a five-year implementation process as the technology becomes ‘business ready’ and telecom companies address data fragmentation and other challenges.” Surveys show that approximately 60% of global airlines are testing or assessing only AI technologies.
Furthermore, “a significant number of telecom companies continue to report little or no savings from implementing AI across business domains,” Morgan Stanley notes.
The industry must address core challenges such as fragmented data infrastructure, integration costs and uneven deployment.
“Breaking data silos is key to widespread adoption,” the note said.
In terms of investment recommendations, analysts emphasize that AI has the potential to expand positive free cash flow (FCF) trends for the telecom sector and is expected to attract increasing attention from investors.
In the short term, the company’s preferred shares include Deutsche Telekom AG Na (ETR:), America Movil (NYSE:), Telefónica Brasil (NYSE:), Singapore Telecommunications Ltd (SGX:), Telstra Group Ltd (ASX:), Rakuten Inc (TYO:), SK Telecom (NYSE:), and KT Corp (NYSE:).
