The critical bets on the future of telco value creation

Telecom operators (telcos) have played a critical role in laying the foundation for the massive, technology-driven economic and financial gains of the 21st century. Yet for most of that period, the industry hasn’t managed to share in much of the spoils. While established tech titans and emerging start-ups alike were profiting from successive generations of wired and wireless infrastructure, the telcos that deployed and operated those networks found themselves weighed down by the crushing capital burden as well as intense new competition. That initial period from the late 2000s to 2015 put great pressure on the industry’s revenues and margins, leaving it with an ROIC that fell below the cost of capital. This article is a collaborative effort by Andrea Travasoni, Dev Patel, Theodor Vendrig, and Tiago Palma, with Alima Ziman and Marco Labianca, representing views from McKinsey’s Technology, Media & Telecommunications Practice. The industry has spent much of the last decade trying to spur a recovery, but its track record has been mixed. Despite making modest progress by embracing selective consolidation, more disciplined and agile operating models, and adjacent businesses or services, it’s often seemed the best the industry could do over the past decade has been to tread water. The market value of telcos has done just that, as the persistent challenges of the prior five to ten years continued to take their toll. Regulatory constraints, a legacy business model, shifting customer expectations, and technological disruption have helped saddle telcos with both TSR and enterprise value multiples that have stayed flat at around 5 to 7 times for the past ten years, even as the tech sector’s have continued to grow to 15 or higher. However, as the industry turns the page on the first quarter of the 21st century there are some signs that telcos may finally be poised to embark on a new era of healthy growth. While the industry experienced notably low TSR growth over the last two decades—at 29 percent versus 235 percent for all sectors globally—it has stabilized, growing 28 percent since the start of 2024, firmly on par with the overall global market (Exhibit 1).1Industry TSR growth as reflected in the MSCI Total Shareholder Yield index. At the same time, in most regions, the longstanding imbalance between revenue growth and investment growth is beginning to narrow. From 2019 to 2021, for instance, investment capital (IC) at North American telcos grew at a CAGR of 1.8 percent while revenues grew just 0.4 percent; by contrast, from 2021 to 2024, IC declined at a CAGR of 0.4 percent compared with revenues’ annual decline of 1.2 percent. The industry is showing a more hesitant, wait-and-see perspective on capital outlays, fueled in part by the fact that many costly 5G and fiber rollouts are close to completion. In a survey of 152 telco executives last year, only a third said they expected investment capital growth to accelerate over the coming three to five years, a 50 percent decline from the prior year’s outlook.2McKinsey Telco CxO Survey was conducted online in February 2025, with a sample of 152 respondents representing Africa, Asia, Australia, Europe, Latin America, the Middle East, North America, and Oceania. Still, driving healthy, long-term growth for telcos will require more than taking a sharper approach to infrastructure investments or reaping productivity improvements. It will take the industry embracing fundamental change and making strategic moves in four key domains: If telcos successfully execute a number of moves across these four domains, they could increase the industry’s lagging ROIC rates and lay the foundation for renewed top- and bottom-line performance, which could in turn lead to more favorable market valuations. Over the last five years, fewer than one in five large telcos across the globe has achieved above-industry-average growth in both revenue and profits, and those were the only players rewarded with enterprise value (EV) growth, delivering around 11 percent annual EV growth on average.3Based on a sample of 166 publicly traded, large telecom operators, including tower companies, across Africa, Asia, Europe, the Middle East, Latin America, and North America. Players that fail to make these significant shifts could face growing competitive pressure in an AI-driven environment. This article explores what it takes for telcos to avoid that fate. The range of strategic moves telcos can make to reignite growth is broad, spanning four primary domains, but the pace of adoption varies widely throughout the industry, and not all moves carry the same importance (Exhibit 2). Like many other industries, telcos haven’t yet seen much top- or bottom-line impact from their experiments with gen AI across various parts of their organization. As with some of their previous technological initiatives, telcos have suffered from a siloed, piecemeal approach to incorporating gen AI or more recently agentic AI. They have tended to favor narrow use-case implementations or cost-reduction pilots over a comprehensive redesign of end-to-end domains, which have so far yielded little financial upside. Industry leaders increasingly recognize that capturing AI’s full potential requires a more holistic transformation, supported by two critical enablers.4These two enablers are part of Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI, McKinsey’s broader, comprehensive digital and AI transformation framework. The second edition of Rewired will be available April 14, 2026. For more information, see, Eric Lamarre, Kate Smaje, and Rodney Zemmel, “Rewired to Outcompete,” McKinsey Quarterly, June 20, 2023. First, data: access to a broad and integrated data foundation is essential to redesign processes end-to-end, and prevents data from becoming the source of a new generation of invisible silos. Second, the operating model: scaling AI requires cross-functional teams, rapid test-and-learn cycles, and continuous improvement embedded into day-to-day execution. Though they remain relatively early in their AI journeys, with very few initiatives fully implemented, many telcos have started to make progress. Sixty-one percent of telco executives in a recent McKinsey gen AI–focused survey said they are focused on scaling gen AI use cases across functions and less on isolated pilots. And, 47 percent reported experiencing some impact from those efforts, up 20 percentage points from a couple of years ago.5McKinsey Gen AI Telco CxO Survey, December 2025 (n = 49). That impact is limited so far, with AI driving less than two percent of total revenues for more than half the operators we surveyed that have tested AI use cases. But the industry remains optimistic about its potential. Fully 64 percent of leaders said they expected the technology to contribute more than five percent of revenues in the near future, and 40 percent anticipated AI-driven cost reductions to exceed 10 percent once the technology is fully scaled across their organizations.6McKinsey Telco CxO Survey, January 2026 (n = 125). As they attempt to achieve those goals, telcos will need to adapt to the fact that data is the core competitive asset in an AI environment. That gives even greater urgency to the industry’s pressing need to standardize its fragmented systems, break down silos, and make structured data easily accessible at all levels of the company. At the same time, standing out from the crowd could become even more challenging. The rise of AI-powered agents risks further commoditizing the telco market, with all players offering similar efficiency and service quality, a situation that could force telcos to be even more innovative and creative in communicating a distinctive value proposition. Overcoming such risks and succeeding at an AI-native transformation will, above all, require telcos to embrace foundational change in the following areas: This type of bold, multifaceted effort depends on several factors that can make the difference between realizing ambitions and encountering significant setbacks. These key enablers include: In those markets where telcos happen to be part of larger diversified conglomerates (such as those in many parts of Asia), building these enablers often presents platforming opportunities to commercialize capabilities both internally and externally. As traditional connectivity markets mature and competitive intensity continues to rise, telcos face mounting pressure to unlock new sources of sustainable growth. Even data, once the industry’s primary value creation engine, is increasingly commoditizing. Amid this challenging environment, telcos seeking a new commercial growth path are already testing and scaling new business models that extend well beyond core connectivity. Telcos happen to be well-positioned for this pursuit. The sector’s position at the center of the digital economy affords it real-time access to data generated across networks, devices, locations, and usage patterns, and at a scale and granularity matched by few other sectors. This unique data advantage, combined with trusted customer relationships and ubiquitous infrastructure, enables telcos to shift from selling discrete products to delivering integrated, value-added services. By responsibly and securely leveraging network and customer insights, operators can create differentiated, customized offerings in both B2C and B2B markets. These range from personalized consumer experiences (including energy, content, insurance, security, omnichannel retail and other offerings) built around a vertical ecosystem to industry-specific enterprise solutions that enhance security, efficiency, and performance. Leading players are already translating this shift into action by expanding into adjacent digital verticals, end-to-end ICT services, network APIs, and private 5G networks. In the process, they are converting experimentation into scalable growth, unlocking new revenue pools, and building a more resilient, long-term value creation model. Vertical ecosystems expansion. Expanding beyond core connectivity to offer adjacent services that unlock new revenue pools is a critical component for telcos looking to drive a new era of healthy growth. These offerings could revolve around everything from security and entertainment to insurance, energy, and fintech, tapping the industry’s reach and infrastructure to dramatically expand the scope of customer relationships. Forward-thinking telcos are already leading the way in this area, shifting from a mindset of selling products into an ecosystem of varied services that can widen the value proposition. Canada’s Telus now gets a quarter of its revenues from B2B digital verticals for healthcare, agriculture, digital process and back-office solutions, part of a diversification strategy that has helped the company’s TSR outperform the country’s broader telco sector. Several European telcos are adding additional services to their portfolio. Spanish operator MasOrange, for instance, has focused on expanding into adjacent categories such as energy, insurance, security, and health/telemedicine to serve its customer base with value-added services and to help increase ARPU and reduce churn, all while reinforcing its core connectivity value proposition. By leveraging a dynamic, TechCo operating model of independent units and agile platforms and scaling through partnerships and other flexible collaboration models, MasOrange has built a number of growing new businesses. These have included an app-controlled electricity-and-gas service, which it sold last year for 90 million euros; an insurance business (mobile, home, health, and payment protection) with a cumulative ambition of more than 7.5 million policies and over €1.5 billion in premium volume; a cobranded home security business (with ADT) that has reduced churn; and B2B focused offerings, including a cybersecurity and IoT offering that are supporting ARPU uplift and profitability through higher-value enterprise services. Italy’s WindTre has enjoyed similar initial success by rolling out insurance and energy products, using upskilling and realigned incentives to enable its store clerks to help drive interest and sales of a significant volume of policies or agreements. Achieving true commercial excellence requires a significant appetite for change as well as a number of specific enabling factors, including the following: As AI reshapes economic competitiveness, digital infrastructure is becoming an even more valuable strategic asset. For telecom operators, this shift opens a path to move beyond the role of capital-intensive utility toward a more differentiated position in the digital economy. The combination of rising AI workloads, growing concerns around network resilience and security, and renewed emphasis on performance at the network edge is creating a set of concrete, near-term opportunities for telcos, particularly in areas where their assets, capabilities, and trusted role intersect with emerging demand. Governments and enterprises are increasingly looking for secure, local, and reliable infrastructure to support AI-driven use cases, while at the same time expecting networks to deliver higher performance, greater reliability, and lower unit costs. Capturing this opportunity will require operators to think holistically about infrastructure, both their own internal systems and the wider external environment in which they compete. They’ll have to focus not just on what they build, but how they operate it, modernize it, and turn it into a true source of differentiation and returns. The key areas include: Successfully leveraging infrastructure as a value creation opportunity requires a number of key capabilities and approaches, including the following: Over the past two decades, telecom operators have faced a steadily tightening set of constraints. Capital intensity remains high, pricing pressure is persistent, and returns have struggled to keep pace with those in adjacent digital sectors. Investors, meanwhile, have become less bought in to complex, vertically integrated models that can be difficult to manage, slow to adapt, and heavily influenced by evolving regulatory environments. All of this is playing out as customers’ expectations for reliability, speed, and seamless digital experiences continue to rise. Against this backdrop, many operators are recognizing that incremental improvement alone is unlikely to change the trajectory of the increasingly commoditized industry. Traditional levers—cost discipline, selective network investment, and product refreshes—remain necessary but insufficient to the task at hand. More leadership teams are stepping back to ask more fundamental questions about structure, focus, and scale: which parts of the business truly benefit from being integrated? where can specialization unlock value? and how can capital be deployed more effectively? Two market-oriented strategic responses are emerging most clearly from this reassessment: delayering and strategic M&A. Each represents a distinct way of addressing structural challenges in the telco value chain, and each has the potential to materially improve performance. At the same time, both require significant organizational change and management attention, making clear strategic intent and disciplined execution essential. Two actions in particular are required: Delayering. The challenges telcos have faced in the past decade or two, particularly with investors, have convinced some to make a dramatic break from the traditional integrated ownership model. To attempt to improve focus, innovation, and valuations, a small but growing number of operators is choosing to delayer or separate into two or more independent corporate entities, typically one built around network and infrastructure (“NetCo” or “InfraCo”) and the other(s) centered on products and services (“ServCo”). While the “NetCo” can take advantage of its new status as a carrier-neutral wholesale access provider, the “ServCo” can further specialize into distinct units based on type of customer, offering, business model, investment horizon, or skills. In many cases, the establishment of a separate NetCo helps to spur consolidation in the telecom infrastructure market and greater economies of scale. The rewards of such a radical step can be significant—some operators that have taken it have realized as much as a ten percentage point uplift in EBITDA margins and a ten times increase in enterprise value multiple, but such positive impact is far from guaranteed. Delayering can take as much as two or three years and sizeable amounts of capital to pull off, and some industry observers think such a split can hamper each separate entity’s ability to present a seamless, omnichannel customer experience, and hence requires significant change management. Still, several carriers have already experienced positive returns through delayering: one of the earliest such moves about a decade ago, by Czech carrier O2/CETIN, produced a 27 percent total market cap increase just one year after the split. More recently, carriers such as Etisalat (based in the UAE), and MTN (based in South Africa) have found success delayering into four or five different separate units or platforms. Market-driven organizational and strategic moves that generate sustainable, incremental value are easier said than done; reaching that ambitious goal takes many key factors, such as the following: As telecommunications leaders contemplate their industry’s place in the emerging AI-driven economy, they have valid reasons to feel cautiously optimistic about their ability to successfully reinvent themselves for this new era. Recent improvements in financial performance, more disciplined capital allocation, the near completion of costly network buildouts, and customers’ evolving expectations have created a valuable opportunity for the sector to move beyond the challenging past two decades into a healthy era of sustainable growth. There is, however, no single playbook or prescriptive formula for turning that opportunity into significant enterprise value. Market structures, competitive dynamics, starting positions, and policy regimes, among other factors, mean that successful telcos will invariably end up taking distinct paths, and the scale and pace of impact will vary significantly. What the strongest performing operators have already shown is that they share a common mindset, if not a common strategy. Rather than betting on one narrow initiative, they have made progress across several of the critical broad strategic areas outlined in this article. Some have focused more on embedding AI at the core of their operating models or redefining commercial engagement, others on innovating with infrastructure or actively shaping markets rather than reacting to them. Companies such as MasOrange, Singtel, Indosat, Telus, and Deutsche Telekom illustrate this diversity: each has emphasized a combination of strategic moves and approaches, yet all have shaped transformation with a portfolio of actions rather than a single lever. Regardless of the specific path, any brand of large-scale telco reinvention depends on a small number of critical enablers. This starts with visible, sustained leadership from the top—setting a clear strategic direction and aligning the organization behind it. Equally important is disciplined investment in data and modular IT, which form the foundation for multiple strategic bets. And finally, it requires an execution-driven culture that favors experimentation and learning by doing, with leaders willing to move from plans to action quickly and make course corrections as warranted. For telco leaders, the overarching lesson is straightforward. Value creation may not require following a uniform template, but it does demand focus, coherence, and the willingness to act across multiple fronts. Telcos that launch a handful of bold, context-specific moves have a chance to materially improve returns and regain investor confidence; in the process, they can capture more of the value their networks enable and reestablish themselves as growth platforms at the heart of the AI economy. Those that hesitate, or pursue siloed initiatives without a broader strategy, risk repeating their recent, growth-challenged history, relegated to low-return, utility-like roles as the pace of dynamic, AI-enabled change accelerates across every industry. Andrea Travasoni is a senior partner in McKinsey’s Milan office, where Marco Labianca is an associate partner. Dev Patel is a senior partner in the Chicago office, Theodor Vendrig is a partner in the Oslo office, and Tiago Palma is a partner in the Madrid office. Alima Ziman is an associate partner in the Almaty office. The authors wish to thank Azamat Bakytbekov and Blanca Alcala for their contributions to this article. This article was edited by Daniel Eisenberg, an executive editor in the New York office. Never miss an insight. We'll email you when new articles are published on this topic. These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site and app. They help us to know which pages are the most and least popular and see how visitors move around the site and app. All information these cookies collect is aggregated and therefore anonymous. 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