“As telco capex moderates, a number of vendors heavily exposed to telecom will engage in layoffs. This has already started happening… So, developments at Cisco are not surprising and more such announcements from other companies are likely in the coming months,” said Arun Menon, Principal Analyst at MTN Consulting. “Telco CAPEX, the main driver of telco vendor revenues, is expected to decline in 2024 as telcos are emphasizing plans to minimize CAPEX, grow free cash flow, and deliver more to shareholders, including via share buybacks.”
A key factor behind a weakening CAPEX is the somewhat lackluster response to 5G. Telcos around the world are struggling to monetize investments in 5G. As per a recent GSMA report, 5G will account for only 25% of the total mobile connections by 2025. There is a growing realization that several 5G use cases, like private networks, Fixed Wireless Access (FWA), and Industry 4.0, among others, will take some time before helping the telcos make money.
In addition, the competition from cloud vendors like Amazon Web Services and Microsoft Azure is also impacting telecom vendors, like Cisco. “The cloud vendors have been investing heavily into the telco vertical for many years and have grown into sizable players. MTN Consulting estimates that they accounted for $5.6B of network infra sales to telcos for the 12 months ending June 2023. Their entry into this market does not grow the pie; they aim to offer competitively priced, innovative services to telcos, and the value proposition is often focused on cost efficiency. They are helping telcos to run their business more cheaply, and that should push down on capex requirements at some point,” said Menon.
Realigning the workforce
There is also a need to realign the workforce in line with the evolving requirements. “With the era of AI and generative AI rapidly setting in, a mainstream shift in paradigm toward software-defined networking is inevitable. Tech leaders must act now to acquire a workforce suited for a future that is fast approaching and, consequently, to hive off a workforce that is lagging in new-age skills. As an aside, for workforces to stay relevant in the future, upskilling through continuous learning is the way forward,” said Deepak Kumar, founder analyst and chief research officer at BMNxt Business and Market Advisory.
