A Real Economy publication

Telecommunications industry outlook

October 25, 2024

Telecommunications industry outlook key takeaways

New data centers are needed to manage the additional computing power necessary for AI functions.

Companies quick to adapt to enhanced regulation can avoid penalties and become industry leaders. 

Low Earth orbit satellites represent the majority of satellites launched into orbit.

Telecommunications trend #1: Data center demand boosted through AI

Outlook
Data center demand boosted through AI
New data centers are needed to manage the additional computing power necessary for AI growth, but meeting that demand comes with challenges.

The biggest trend in the telecommunications industry—and the business market as a whole—is artificial intelligence. Even though the hype surrounding AI has been steadily building since ChatGPT was released in late 2022, we are currently in the early stages of the AI computing cycle. If similar patterns from past computing cycles hold true, the first wave of monetization generally involves semiconductors; the second, infrastructure; and finally, software and services associated with the new computing tool.

The largest growth from AI so far has been from the companies that manufacture semiconductors and the AI companies developing the large language models. The next wave should see increased growth in infrastructure, mainly through data centers needed to handle the increase in computing power. The ultimate business model will be the software and services that use the AI models to perform specific tasks that drive efficiency, increase automation and increase production.


Telecommunications trend #2: Abundant regulation reshapes the landscape

Outlook
Abundant regulation is reshaping the telecommunications landscape
Telecom companies must be nimble to comply with rapidly evolving regulations in cybersecurity, connectivity, transparency and more.

Regulation tends to be more reactive than proactive. With connectivity to almost everything increasing, the telecommunications industry is ripe for more regulation. Over the last year, new compliance standards have largely focused on three broad categories: cybersecurity, reliable connectivity and consumer transparency. Companies need to be nimble to comply with the shifting regulatory landscape and avoid potential penalties—and they need to stay informed on multiple fronts, as significant regulation can come from local, state, federal or even international bodies.


Telecommunications trend #3: The rise of LEO's

Outlook
Telecom’s final frontier is creating a mega constellation—and mega space junk?
Middle market companies can capitalize on the rise of satellite launches, but they must be aware of regulatory and overcrowding concerns.

Since 2000, over 9,600 satellites have launched into orbit, with LEOs accounting for over 88%. Their popularity stems from lower costs and better coverage, but concerns about space junk and regulatory oversight are growing.

Companies navigating this space must balance innovation with regulatory compliance and environmental responsibility to capitalize on the potential of LEO constellations while mitigating risks.


RSM contributors


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