Telecom vertical looks promising for IT cos

Delays in decision-making and pressure on profitability have also contributed to a slower pace of transformation initiatives in telecommunications - Ashis Dash & Kunal Bajaj, analysts of Mirae Asset Capital Markets, wrote in a report

Bottom Line Pressure

♦ Global telecom giants like AT&T, others pursuing cost savings measures

♦ These telecom firms also leveraging AI to improve efficiency

♦ Tech spend revival looks unlikely in the near term

Bengaluru: Indian IT services companies will continue to see low technology spending in their telecom verticals in the near-term as global telecom giants reduce spending owing to cost pressure.

However, the medium-term outlook for the telecom vertical remains bright as AI-driven spend and possible interest rate cuts are likely to fuel demand in coming years, analysts said.

“The management of most IT services companies indicated that tech spending in the telecom vertical continues to remain soft, as enterprises are still focusing on deriving benefits from 5G-related investments. Delays in decision-making and pressure on profitability have also contributed to a slower pace of transformation initiatives in telecommunications,” Ashis Dash & Kunal Bajaj, analysts of Mirae Asset Capital Markets wrote in a report.

According to the report, global telecom firms are undertaking several cost-cutting measures as their 5G-related investments are yet to get desired return.

US-based telecom firm, AT&T has embarked on a cost transformation programme from which it eyes to garner $2 billion savings in annual expenses by 2026. The company is trying to save cost by embracing new technology and streamlining processes.

Another US-based telecommunication firm, Verizon has introduced a voluntary separation programme to save costs. It is also leveraging AI technology to improve efficiency.

Similarly, Europe-based telecom operators have also undertaken organisational restructuring to save cost. For instance, Spain-headquartered Telefonica has taken up workforce restructuring programme in Spain and effective cost management initiatives for cost savings.

Swedish firm, Ericsson has announced a significant organization restructuring initiative that includes headcount reduction of about 1,200 staffers in Sweden.

BT (British Telecom) has already achieved its initial goal of GBP3 billion in gross annualized cost savings. It is now targeting another GBP3 billion over the next 5 years through digitization and AI.

Nokia is another major telecom firm that has achieved Euro400 million of cost reduction of the targeted Euro800 million. The company eyes Euro1,200 million in cost reduction by 2026.

“While the company has reduced 6,000 plus staff (7% of total) since the announcement of its cost savings programme in October 2023, Nokia plans to lay off another 4-10 per cent jobs under this cost savings programme,” the report said.

Vodafone is another telecom operator that plans to cut 2,000 jobs in Germany and 1,200 employees in Spain as part of its cost reduction programme. Cisco, cybersecurity & telecom gear firm, is planning to lay off 6,000 employees in its latest round of layoffs.

Though some companies like Infosys, TCS, HCL Tech & Mphasis have seen sequential rise in telecom vertical on the back of deal ramp-ups, overall sentiment in the vertical remains subdued, sources said.