Telco AI Monetization on the Revenue Front Will be Difficult

Mobile executives these days are talking about ways to monetize artificial intelligence beyond using AI to streamline internal operations. Generally speaking, these fall into three buckets:

• Personalizing existing services to drive higher revenue, acquisition and retention (quality of service tiers of service, for example)

• Creating enterprise or business services (private 5G networks with AI-optimized performance,, for example)

• AI edge computing services for autonomous vehicles, for example

Obviously, those are AI-enhanced extensions of ideas already in currency. But some of us might be quite skeptical that such “AI services” owned by telcos will get much traction. History suggests the difficulty of doing so. How many “at scale” new products beyond voice have telcos managed to create? Text messaging comes to mind. Mobile phone service also was a big success. So is home broadband. 

All those share a common characteristic: they are network services owned directly by the service providers. Generally speaking, other application efforts have not scaled well. 

Mobile service providers have been hoping and proclaiming such new revenue opportunities since at least the time of 3G. But many observers might agree there has been a disconnect between the technical leaps (faster speeds, lower latency, better efficiency) and the ability to turn those into new revenue streams beyond the basic "sell more data" model. 

That is not to say that service providers have had no other ways to add value. Bundling devices, content and other measures have helped increase perceived value beyond the core network features. 

But the core network as a driver of new products and revenue is challenging for a few reasons. 

• Open networks mostly have replaced closed networks (IP versus PSTN) 

• Applications are logically separate from network transport (layers)

• Permissionless app development is the norm (internet is the assumed network transport)

• Vertical control of the value replaced by horizontal functions (telcos had full-stack control of voice, but only horizontal transport functions for IP-based apps)

As I have argued in the past, modern telcos have a hybrid revenue model. They are full-stack “service” providers for voice and text messaging. But they are horizontal transport providers for most IP apps and services, and sometimes are app providers (owned entertainment video services, for example). 

The point is that most new apps and revenue cases can be built by third parties without telco or mobile operator permission, which also takes transport providers out of the direct revenue chain. 

So I’d argue there is a structural reason why telcos and mobile service providers do not directly benefit from most of the innovation that happens with apps. Think about all the customer engagement with internet-delivered apps and services, compared to service provider voice and messaging. 

In their role as voice and text messaging providers, telcos are “service providers” (they own and control the full stack). For the rest of their business, they are transport or access providers (capacity or internet access such as home broadband), a horizontal value and revenue stream. ISPs get paid to provide “internet access,” not the actual end user apps. 

And that has proven a business challenge for now-obvious reasons. Once upon a time, voice services were partly flat-rate and partly usage-based. In other words, telcos earned money by charging a flat fee for access to the network, and then variable usage based on number, length or distance of voice calls. 

In other words, greater usage meant greater revenue. But flat-rate voice and texting usage subverts the business model, as  most of the revenue-generating services become usage-insensitive. That is the real revolution or disruption for voice and texting. 

In their roles as internet access providers, some efforts have been made to sustain usage-based pricing. Customers can buy “buckets of usage” where there is some relationship between revenue and usage. 

Likewise, fixed network providers have used “speed-based” tiers of service, where higher speeds carry  higher prices. Still, those are largely flat-rate approaches to packaging and pricing. And the long-term issue with flat-rate pricing is that it complicates investment, as potential usage of the network is capped but usage is not.  

So as much as ISPs hate the notion that they are “dumb pipes,” that is precisely what home or business broadband access is. So internet access take rates, subscription volumes and prices are going to drive overall business results, not text messaging, voice or IoT revenues. 

To be sure, we can say that 5G is the first mobile generation that was specifically designed to support internet of things applications, devices and use cases. But that only means the capability to act as a platform for open development and ownership of IoT apps, services and value. And even if some mobile service providers have created app businesses such as auto-related services, that remains a small revenue stream for mobile service providers.  

Recall that IoT services are primarily driven by enterprises and businesses, not consumers. Also, the bulk of enterprise IoT revenue arguably comes from wholesale access connections made available to third-party app or service providers, and does not represent telco-owned apps and services (full stack rather than “access services”). 

Optimistic estimates of telco enterprise IoT revenues might range up to 18 percent, in some cases, though most would consider those ranges too high. 

Region/Group	Total Mobile Services Revenue	IoT Connectivity Revenue (Enterprises)	Automotive IoT Apps Share of IoT Revenue	% of Total Revenue from Automotive IoT Apps
Global Average	$1.5 trillion (2025 est.)	10-15% (2025, growing to 20% by 2027)	25-35%	2.5-5.25%
North America (e.g., Verizon)	$468 billion (U.S., 2023, growing 6.6% CAGR)	12-18% (2025 est.)	30-40% (high 5G adoption)	3.6-7.2%
Asia-Pacific (e.g., China Mobile)	$600 billion (2025 est.)	15-20% (strong automotive industry)	35-45% (leader in connected cars)	5.25-9%
Europe (e.g., Deutsche Telekom)	$400 billion (2025 est.)	10-15% (CEE high IoT reliance)	25-35%	2.5-5.25%
Top 10 Mobile Operators	$1 trillion (2025 est.)	12-18% (based on 2.9B IoT connections)	30-40%	3.6-7.2%

Though automotive IoT revenues (again mostly driven by access services) arguably are higher for the largest service providers, their contribution to  total business revenues is arguably close to three percent or so, and so arguably contributing no more than 1.5 percent of total revenues, as consumer services range from 44 percent to 65 percent of total mobile service provider revenues. 

Category	Percentage of Total Revenue	Example products
Services to Consumers	55-65%	Driven by mobile data (33.5% in 2023), voice, and equipment sales; 58% in 2023
Services to Businesses	35-45%	Includes enterprise, public sector, and SMBs; growing at 7.1% CAGR
Business Voice	5-10%	Declining due to VoIP adoption and mobile data preference
Business Internet Access	15-25%	Rising with 5G, IoT (e.g., automotive apps at 2.5-9%), and enterprise demand

The point is that the ability to monetize AI beyond its use for internal automation is likely limited. Changes in the main revenue drivers (consumer and business mobile phone subscriptions and prices) are going to have more impact on revenue and profit outcomes than IoT as a category or automotive IoT in particular.

Cherry Picking Lumen's Consumer Fiber Business

It perhaps always is difficult to value copper access lines when considering an acquisition with the intention of upgrading those lines to fiber access. It might also be somewhat difficult to value fiber lines in neighborhoods and parts of cities, even when there is no intention to buy copper lines and upgrade them. 

Without question, though, the “upgrade” analysis is more difficult. For starters, not all lines really are candidates for upgrading. In some cases, most lines might not be candidates. In such instances, the “upgrade to fiber” business plan will hinge on a minority of lines. 

Assume that perhaps 35 percent to 45 percent  of Lumen Technologies' consumer access lines could be profitably upgraded to fiber. 

But assume the hypothetical $5.5 billion purchase price of the Lumen “consumer fiber business” by a buyer such as AT&T is reasonably accurate, and only includes the already-built fiber assets and customers. 

Without further details, we are left to wonder what assets are included, but It might be reasonable to conclude that it is a “cherry picked” set of assets not including central offices, voice infrastructure and copper lines. 

That might be because the clearest economics are already captured by the existing fiber facilities. Back in 2022 Lumen’s fiber-to-home footprint reached about 27 percent of total access lines. By some estimates it is possible that Lumen or another owner could upgrade between 35 percent to 45 percent of consumer access lines to fiber on a profitable basis. 

But by some estimates Lumen might have built most of the lines it can in markets where it would be the first fiber provider. In many cases the business case for upgrading and becoming the second fiber provider in a neighborhood might not be attractive. 

In markets where a single provider uses fiber, consumer buy rates can hit 40 percent of locations passed. In a market where Lumen is the second provider, it might only get 20 percent take rates. 

The flip side is that more than half of all Lumen’s existing copper facilities likely cannot be upgraded for economic reasons. 

And the copper-based business continues to decline. In early 2024, Lumen had perhaps  4.2 to 4.6 million consumer access lines generating revenue. By early 2025, this number is likely to have further decreased to 3.6 to four million consumer access lines used by paying customers. 

Access Line Type	Total Lines	Total Consumer Accounts
Total Consumer Access Lines	8,200,000	N/A
Fiber Lines	3,600,000	2,100,000
Copper Lines	4,600,000	1,900,000

Basically, a buyer intending to upgrade Lumen consumer lines is basing that decision on perhaps 2.9 million to 3.6 million out of 8.2 million lines, conservatively. By some estimates, Lumen might already have upgraded as many as 3.6 million lines, though that figure also includes small business lines that are routinely counted in the “mass markets” bucket. 

Perhaps there is some revenue to be generated from the copper lines, but it is a declining resource. 

Based on a $5.5 billion purchase price, that implies a per-line investment of between $1897 and $1528 for existing fiber lines, possibly not including any copper lines that are theoretically upgradeable. 

We must assume that there are two different types of potential buyers. In one camp are firms that see the potential to increase equity value by upgrading copper access facilities to fiber. In another camp are firms that primarily want the incremental revenue. The former includes firms that see eventual asset sales. The latter mostly includes operating firms in the business for the long haul. 

If we assume that Lumen would prefer to get out of the consumer mass markets business altogether, a key issue is whether the rest of the consumer business and facilities (central offices, voice infrastructure, non-upgradable lines) would be retained, spun off to another third party if possible, or bundled on a low-cost basis to a potential buyer that really just wants the fiber assets. 

It’s messy. For starters, Lumen (or any new owner acquiring the whole mass markets business) probably would continue to be viewed by regulators as a “carrier of last resort,” meaning it would have to keep offering voice services broadly and might also not be allowed to decommission the copper access network. 

An owner might argue it could use other technologies (mobile network, for example) to supply voice and lower-speed internet access service, even if it decommissioned the whole copper network. But regulators have resisted such pleas in the past. 

The point is that an acquisition of the Lumen mass markets business would be messy. The value is the fiber lines and potential boost in fiber customers. But getting those lines might also entail getting lots of copper lines that actually cannot be upgraded and have declining value. 

And if a potential acquirer only wanted the fiber for internet access and other “data” purposes, the central offices and voice infrastructure would not be very helpful. Beyond that, Lumen’s consumer fiber access lines are scattered about in some neighborhoods in many cities. There are no cities with ubiquitous fiber in place. 

Of course, it always is possible that a potential acquirer really only wants the fiber-to-home facilities that already are in place (neighborhoods), with no intent to buy copper lines and upgrade them. That’s arguably an easier business case to make, as there is not requirement for additional capital for the upgrades from copper. 

Asking the Wrong Question about 5G

The claim  that "5G has failed” is in some ways an odd one. On one hand, critics tend to cite the unfulfilled promises of exciting new use cases. On the other hand, critics tend not to focus on the lower latency, faster speeds or energy efficiency that each successive network also is founded upon. 

But that might be the main point: each successive mobile generation has been successful and necessary precisely for the reasons that consumer home broadband experiences have been based on ever-increasing bandwidth, capacity and access speeds. 

So alter the question just a bit to understand the real impact. Do you ever really hear observers arguing that mobility services (mobile phone service) actually have failed? One does not hear such claims because mobile service clearly has been a raging global success. 

Some 71 percent of humans presently use a mobile phone, according to the GSMA.  

source: World Economic Forum 

So “mobility” has clearly succeeded, even if some feel particular mobile platforms have not. To be sure, proponents have touted the creation of platforms for futuristic use cases (the network will support them), not the extent of usage. Some examples can always be cited, though often not mass market adoption. 

To be sure,  every mobile generation since 3G has made such claims. And we might advance some very-practical reasons for the claims. Each mobile generation requires the allocation of additional spectrum from governments, which have to be convinced to do so.

Pointing out the new potential applications; the contribution to economic growth; educational advantages and so forth are part of the effort to secure the new spectrum. 

Also, infrastructure suppliers have a vested interest in enticing operators to create whole new networks precisely because it might be possible to create new revenue streams, or provide

Still, each successive mobile platform has promised, and delivered, latency improvements of about 10 times over the preceding generation, as well as potential bandwidth (internet access speeds) of 10 times more, and typically also energy consumption efficiencies as well. 

The practical improvements always vary from laboratory tests, though. The actual behavior of all radio waves in real-world environments is an issue. So are the realities of impediments to signal propagation (walls, trees, other obstacles) and signal interference.

Cell geometry also matters. Higher bandwidth is possible when smaller cells are used. 

Higher bandwidth is possible when channel sizes are increased (as when channels are bonded together to create a single wider channel from two or more narrower channels). 

And real-world “customer-experienced speeds” also are dependent on which actual frequencies are used widely by each mobile generation. Lower frequencies propagate better, but higher frequencies support higher speeds, all other things being equal. 

Still, the point is that observers never question the “success” of the mobile phone and mobile networks, only the “failure” of futuristic apps to emerge. 

That is not the point. The primary and essential value of each successive mobile platform comes from network performance (lower latency, higher bandwidth) and not the possible new apps, which cannot be created by mobile operators in any case, anymore than internet service providers having created Facebook. Google, Amazon, YouTube or Uber. 

Mobile operators can only create the physical infrastructure third parties can use to create new use cases. And that has been accomplished. But then innovation leading to new apps rests in the hands of entrepreneurs and investors.  

That’s the whole implication of “permissionless innovation” the internet is based upon: innovators do not have to own networks to build apps that use the networks. The entities that own the access or transport networks do not necessarily or primarily create and own the apps. 

Oddly, the reverse tends to be the case: highly-successful consumer app providers find they can vertically integrate into core network transport as a means of lowering their costs. That is why most of the world’s long distance networks (subsea, especially) are built and owned by a relative handful of big app providers such as Alphabet (Google) and Meta. 

It is fair to note that few of the futuristic apps touted for 3G, 4G or 5G networks have become mass market realities. On the other hand, lots of highly-useful apps not envisioned for any of those networks have emerged.

Net	Predicted "Futuristic" Use Cases	Unexpected "Everyday" App Developments
3G	Video conferencing, mobile TV, advanced multimedia	Mobile social media (early stages), basic GPS navigation, early app stores
4G	Immersive VR/AR, high-definition mobile gaming, remote surgery	Ride-sharing apps (Uber, Lyft), widespread video streaming (YouTube, Netflix), robust social media (Instagram, TikTok), advanced turn-by-turn navigation (Google Maps)
5G	Holographic communication, tactile internet, massive IoT deployments	Enhanced real-time location based services, very high definition mobile video streaming, cloud gaming, very reliable real time social media interactions. Increased use of live streaming services, and the further enhancement of cloud based applications.

All of which suggests we are very bad at predicting the future; innovations often emerge unexpectedly and only when users see the value. 

Consider only the industrial, commercial, medical and other applications generally centered around the use of sensors and mobile networks as the connectivity mechanism. Most have not taken off in a significant way, even if there are some instances of viable and routine deployment. 

Generation	Touted Possible New Applications
3G	- Telematics for automotive industry5
	- Smart home devices (thermostats, security cameras)1
	- Traffic light systems1
	- Vending machines with remote monitoring1
	- GPS trackers for livestock1
	- Wearable devices and e-readers1
	- Medical alert devices1
	- Remote weather stations1
4G	- Enhanced mobile broadband for video streaming and gaming6
	- Smart home applications2
	- Internet of Things (IoT) connectivity2
	- Remote monitoring systems2
	- Vehicle communications (real-time road information, navigation)2
	- VoIP calls and video conferencing6
	- Mobile payments6
5G	- Telesurgery and remote medical procedures4
	- Fully autonomous vehicles4
	- Advanced connected homes4
	- Portable Virtual Reality (VR) experiences4
	- Smart city infrastructure4
	- Ultra-reliable low latency communication (URLLC)3
	- Massive Machine Type Communication (mMTC)3
	- Industrial automation and robotics8
	- Remote patient monitoring in healthcare7
	- Large-scale IoT deployments in agriculture, utilities, and logistics

For the most part, the futuristic appl;ications have not developed as expected, and when they do take hold, it often is in the subsequent generation.

Many expected 3G to produce mass market usage of videoconferencing. That did happen, but only in the 4G era, with social media and other multimedia messaging apps, for example. That is a fairly common pattern: we overestimate routine adoption by at least a decade. 

Use Case Prediction	Actual Adoption (at least early stage)	Delayed Applications Likely Emerging in Later Generations
3G Expectations (Medical devices, telematics, mobile TV)1	4G Realizations (IoT connectivity, smart meters, vehicle telematics)2	4G Concepts for 5G Era - Advanced industrial automation3 - Mobile medical monitoring systems3 - Smart grid controls3 - HD public safety cameras3
4G Expectations (Massive IoT, Industry 4.0)2	5G Realizations (Network slicing, enhanced mobile broadband)4	5G Concepts for 6G Era - Holographic communications5 - Autonomous vehicle networks57 - Network-as-sensor technology5 - Microsecond-latency telesurgery7
5G Expectations (URLLC, mMTC)34	6G Projections - 1,000x faster latency than 5G7 - AI-optimized networks5 - Energy-efficient massive IoT6	6G Horizon - Real-time digital twins5 - Military-grade AR simulations5 - Advanced environmental sensing5 - 8K holographic streaming

The point is that mobile services and smartphone services have proven wildly successful. In fact, nobody doubts that. What often gets criticized are the many futuristic apps that could be developed with each next-generation mobile network.

That misses the point. As fixed network home broadband has to continually extend internet access speeds and bandwidth, so too do mobile networks. The bottom line is that each successive mobile generation succeeds to the extent it does so.