Telecommunications is undergoing a transformation, with new technologies and business models redrawing the landscape. Fifth-generation (5G) wireless communications, cloud computing, decentralized telecom networks, virtualized network services and artificial intelligence (AI) are among the technologies ushering in innovative services for customers and new business prospects for telecom companies large and small. But while innovation can deliver rewards, it also carries risks. Consider how the IT industry has made inroads into telecom’s traditional turf via the cloud, social media messaging and collaboration platforms. This article describes how the U.S. telecom market is evolving, tackling challenges and creating new opportunities.

What Are Telecom Industry Challenges?

As the dominant telecom service providers, giant U.S. mobile and cable operators are using new technologies to ratchet up their battle with each other for market share. At the same time, companies ranging from major cloud providers to systems integrators and smaller network services businesses are expanding their competitive footholds. In the telecom equipment and software markets, meanwhile, established and new suppliers are competing to share in the demand for ongoing network expansion and transformational solutions. Technology-fueled competition represents the predominant dynamic in the telecom industry, promising business growth even as it brings with it myriad challenges.

Key Takeaways

  • The telecom industry is undergoing a technology-driven transformation.
  • With new technologies come advanced services and more business opportunities.
  • In this fast-evolving landscape, challenges have also emerged in areas that include market competition, regulation, business performance and talent management.

Telecom Industry Challenges Explained

For all the opportunities that come with an industry transformation, enormous challenges also arise, including competitive, regulatory, financial and environmental — as well as technological. For example, 5G is a major change agent that demonstrates how technology and competition are revamping the state of play in the telecom industry. Major U.S. telecom companies began rolling out this latest generation of wireless technology in 2019 amid great fanfare, since its higher performance could catalyze new types of services for consumers and businesses. However, this hasn’t been without its challenges. Among them: 5G is still not available nationwide, most of the exciting new services that were promised are yet to materialize and interoperability among various networks and devices remains a hindrance. Still, 5G is already making a big difference in the following ways.

  • New services: 5G wireless technology delivers faster speeds (over 100 Mbps), lower transmission delays (aka latency) and greater reliability (advertised at 99% or better) than previous technologies. 5G’s use is growing as a replacement for wireline access to homes and offices, as well as for mobile broadband services. The technology opens the door to many possibilities that have yet to be tapped — and other applications still to be defined. For consumers, new capabilities are expected to include augmented and virtual reality gaming, as well as more immersive live video streaming. Examples of 5G’s application in business include diagnostics for industrial equipment and remote patient monitoring in healthcare. The benefits of 5G are being bolstered by edge computing, which decentralizes telecom network control as it moves powerful data processors closer to customers and connects billions of devices on the Internet of Things (IoT).
  • More business opportunities: 5G, in turn, is disrupting the dominant wireless telephone and cable companies’ historical hold on the U.S. telecom market. The technology increases opportunities for competitive service providers, such as mobile virtual network operators catering to consumers and network-as-a-service (NaaS) providers of enterprise services. Meanwhile, small and midsize businesses have also tapped into new opportunities created by the scale of the buildout of the 5G network and IoT as equipment and software suppliers.

Keep in mind that 5G is just one of the technologies leading to new services, applications and business opportunities. Cloud computing has also fueled competition between the major cloud service providers and telecom companies, for example, and edge computing is expanding this competition in IoT and other areas.

24 Challenges Facing the Telecom Industry

Back in the day, telecom companies placed telephone calls and cable companies delivered TV channels. Over time, digital transformation in business and at home has eroded the profitability of these core services even as it has generated new sources of revenue, including bundles of integrated voice, internet and entertainment services. Telecom companies need to achieve profitable growth amid technological disruption and related competitive, regulatory and other challenges.

telecom industry challenges
Companies in the telecom industry must manage an array of issues, from technological disruption and stiff competition to heavy regulatory oversight.


Recent statistics paint a dramatic picture of accelerating technological change. The average number of devices and connections per person in North America has gone from 8.2 in 2018 to 13.4 in 2023, according to Cisco, a network equipment provider. Average fixed broadband speeds have surged from 56.6 Mbps to 141.8 Mbps in the same time frame; and mobile network connection speeds have increased, on average, from 21.6 Mbps to 58.4 Mbps. Handling all of that traffic is not just a matter of speed and capacity, but also complexity, given the variety of devices, increase in service types and explosion of applications placing unique demands on telecom networks. Technology challenges include:

1. Need for constant upgrades and innovations: The U.S. wireless industry spent $39 billion in 2022 to expand, improve and run its networks, according to CTIA, a telecom trade association. 5G represents a major share of this record-setting year of investment. In addition to wireless, expensive fiber optic cables provide the backbone for 5G and expand cable companies’ fiber-to-the-home and -office installations at ever-higher speeds. Telecom companies’ challenge isn’t just implementing network upgrades but paying for them. Telecom companies hold a lot of debt, with the biggest two U.S. industry players — AT&T and Verizon Communications — landing in Global Finance magazine’s 2023 list of the world’s most indebted companies.

2. Investment in research and development: Whether it’s to advance wireless or wireline technology, innovation never ceases. Even before the 5G wireless rollout is complete, for example, mobile equipment suppliers are working on 5.5G, expected around 2025, and 6G, to be commercially deployed in the 2030s. Meanwhile, wireline networks operated by cable companies are being upgraded to deliver 10 gigabits in both directions, into and out of homes and offices, starting in 2024. Smaller telecom companies are also developing leading-edge hardware and software. A list of “telecom startups to watch in 2024” includes one that is building a multi-operator connectivity platform for IoT, another working on AI automation of 5G deployments and a third developing blockchain-based 5G networks. Amid all this innovation, a big challenge for the dominant telecom service providers is that they have largely ceded leadership in R&D to equipment makers, software companies and cloud providers. Experts say this makes it hard for them to competitively differentiate themselves.

3. 5G implementation and development: The number of people who have subscribed to 5G falls far short of the number who potentially could sign up. 5G subscription penetration reached 36% of people in North America in the first quarter of 2023, according to trade association 5G Americas. But at least one 5G network — T-Mobile’s — covers 98% of the United States. Amid reports that mobile subscriptions continue to increase, concern surrounds the slower growth of newer consumer applications, such as virtual reality, and business use cases, such as private networks in highly automated factories. Some observers say that “chicken-or-egg” dynamics are at play in these areas, with 5G-ready device makers awaiting demand before they fully commit to the market, while potential 5G users hold off on spending until they see devices achieving critical mass. As this delay persists, business growth proves increasingly elusive in the telecom industry.

4. IoT and the rise of connected devices: IoT devices, which enable remote sensing and other capabilities in supply chains, electrical grids and security surveillance systems, already number in the billions — and counting — in the United States. For all those devices, it’s services that constitute the largest area of spending on IoT, according to market research from IDC, with telecom companies, systems integrators, cloud providers and others all vying to provide the required design, connectivity, data management and analytics for businesses. Big telecom companies have been driven to partner with competitors to handle the sheer scale and complexity of implementing IoT.

5. AI and machine learning applications: Like other technologies, AI and machine learning present telecom companies with both opportunities and challenges. For instance, AI can streamline network operations, improve customer support and enhance service offerings. Machine learning, meanwhile, can optimize network performance, predict and prevent outages and perform predictive maintenance. At the same time, however, telecom companies need to overcome the challenges presented by AI and machine learning, such as integrating them into legacy systems even while the skills to do so are in short supply.

6. Increasing prevalence of cyberattacks: Telecom networks represent critical infrastructure that is subject to cyberattacks from hostile nations as well as cybercrime syndicates. As cyberattacks on all types of companies continue to multiply, telecom companies’ increasingly complex digital environments, multiplying access points and growing stores of customer data make them more vulnerable and more attractive to cyberattackers than ever. Smaller telecom companies also face high network security risk, according to a 2023 report from USTelecom, a trade association.

Market and Competition

The U.S. telecommunications market is enormous, at nearly half a trillion dollars in annual revenue. Competitors continually emerge to reach for nearly every slice of that pie. On one level, social media messaging and collaboration and conferencing platforms have eroded dominant telecom companies’ text and voice revenue. On another, telecom equipment providers, systems integrators and managed service providers compete with the leading telecom companies to sell private networks to enterprise customers. Cloud service providers, meanwhile, represent the prime example of what’s called over-the-top services. These represent a significant drain on telecom network traffic and revenue because they deliver services via the internet with minimal to no involvement of a telecom operator. Meanwhile, mobile and cable companies aggressively compete against each other in these and other services markets. Other competitive challenges include:

7. Intense competition leading to reduced profit margins: The big telecom companies’ net profit margins tend to run in the high single digits to low double digits, which is far below average IT sector margins but still considered healthy. Intense competition is among the main factors keeping profits at this level — and sometimes lower, which occurs when major wireless operators and cable companies get into price wars.

8. Struggle for market share among industry giants: The basic unit of competition among wireless and cable industry giants is the bundle. The major U.S. wireless and cable companies compete with each other by bundling broadband Internet access, TV channels, streaming services, and mobile and landline voice services. They cross over into each other’s markets in various ways. Among them, wireless companies are building 5G fixed wireless access connections into homes, while cable companies buy wholesale wireless capacity and resell services to their customers as mobile virtual network operators. Meanwhile, the 850 independent U.S. telephone companies and 700-plus independent U.S. cable companies have found it challenging to offer bundled services like these, but they are seen to be moving in the same direction.

9. The importance of quality customer service: Intense competition increases the need for telecom companies to provide a positive customer experience, which has not historically been their strong suit. What’s more, companies, such as Uber and Netflix, have raised the bar with their seamless online experiences, heightening customer expectations and forcing telecom companies to redefine their customer relationship management. “It is becoming extremely difficult for operators to differentiate, leading to the commoditization of connectivity, fierce competition, and eroding margins,” according to management consulting firm McKinsey. “Against this backdrop, customer experience is emerging as the primary competitive differentiator.” Unfortunately, improving the customer experience will require wide-ranging transformational changes, McKinsey says, including a refresh of customer service agent management.

10. Shifting consumer preferences: In the consumer market, the home often doubles as the workplace in today’s era of remote working. The home might be a smart home, with devices for automated security, energy and cleaning. And, various members of the household could be using increasingly sophisticated digital devices and services for entertainment, healthcare and education. Telecom companies are delivering higher-speed broadband services to fulfill all this demand, as well as wireless routers, phones, tablets, watches and even smart vacuum cleaners, thermostats and security cameras. While telecom companies are considered to be well-positioned to cater to markets, such as the smart home, many of the devices still aren’t entirely DIY, requiring more customer interaction than telecom companies typically engage in.

11. Rising customer expectations and demands: Business customers’ need for NaaS poses another set of challenges. For example, many telecom and IT companies see private networks as a growth market amid declining returns on their other product lines, according to Analysys Mason, a management consultancy. New telecom technologies, such as network slicing, are coming online to combine customized “slices” of telecom network resources for computing, storing and networking to meet specific business needs. Nevertheless, competition for conventional private networking is already intense among traditional telecom companies, network equipment providers, specialized network service providers, systems integrators and others. And no single type of provider is seen to be strong in all the areas in which businesses need solutions.

Economy and Finance

When the economy is uncertain, telecom companies must overcome several economic and financial challenges to their profitability and growth. In this capital-intensive industry, for instance, network operators currently face higher interest rates on their significant levels of debt. But even if there’s an economic downturn, people and businesses still need to connect, which ensures a certain level of recurring revenue. Telecom companies may not be recession-proof, but a 2023 survey by Recon Analytics shows that consumers would rather cut back on heating and car payments than on home internet or mobile service. Other economic and financial challenges include:

12. High capital expenditure for infrastructure development: The competitive race to build out 5G and fiber-to-the-home infrastructure has abated, despite coverage remaining incomplete. But the capital intensity of telecom remains higher than in most other industries, averaging 15 cents or more of capital investment per every dollar of revenue. With high CapEx (capital expenditures) come high debt levels, at today’s higher interest rates. Meanwhile, for smaller telecom companies, the high cost of telecom equipment also presents a challenging business case and even a barrier to market entry, according to Technavio’s market research. But virtualized network services, such as NaaS, can provide a less capital-intensive alternative.

13. Financial sustainability and profitability concerns: To cover their high costs, major telecom companies need to streamline operations and monetize their 5G and fiber investments by developing new products and services. They have suffered from their “build it and they will come” attitude, according to research firm Frost & Sullivan. As for current services and ongoing price wars, accounting firm PwC concludes that telecom companies have less and less pricing power on increasingly commoditized connectivity and data services. They’ve also seen their costs driven higher by inflation, eroding profitability.

14. Impact of economic downturns on the telecom industry: For all its challenges, the telecom industry has advantages that could help shield it from the impacts of an economic downturn. One such advantage, as mentioned above, is that consumers prioritize connectivity, providing steady revenue despite price increases. That said, the Recon Analytics survey points out a potential weak spot: Consumers see streaming and cable TV services as the fourth and fifth items they would cut in a recession (after dining out, clothing and credit card spending). This consumer behavior could hurt telecom companies because consumers would be cutting the kinds of services that justified much of the 5G and fiber buildout in the first place as well as a key component of today’s service bundles for residential customers.

15. Strategies for mitigating economic risks: Experts point to several telecom strategies to mitigate economic risks, such as companies’ current slowing of capital investment and a continued focus on cost-cutting. Telecom companies are pursuing digital transformation, including data analytics to reduce customer churn and increased automation to downsize their workforces amid pressure to increase wages. Companies also see pockets of growth in areas like IoT and private 5G networks for businesses. Whichever route they take, companies need to stay vigilant about watching for recession indicators and remain poised to realign their strategies, given the ongoing debate about whether or not a recession is coming.

Regulation and Policies

Telecom is a highly regulated industry, and policymakers’ priorities have been shifting, in line with economic, political and societal changes. For example, cybercrime, geopolitical conflict and a cost-of-living crisis have brought greater regulatory oversight of network security, network supply chains and the digital divide between those who have access to broadband and those who don’t. Also at the top of the agenda is spectrum availability and how regulators will make more airwaves available for continued wireless expansion and innovation. Other regulatory challenges include:

16. Impact of regulations on industry dynamics: Regulation is a double-edged sword. Policies can accelerate innovation with subsidies and radio spectrum, as they have with 5G; but regulation can also inhibit innovation in other areas, as it limits big industry players from experimenting with new business models.

17. Meeting varied regulatory standards: The range of telecom regulations is wide — from requiring U.S. telecom companies to replace Chinese equipment in their networks to demanding new broadband labeling that helps consumers better understand their service options. Other varied areas of regulation cover spam texts, rural broadband service, subsidies for Wi-Fi on school buses and “net neutrality,” the latter of which embodies the principle that telecom companies must treat all data on the internet the same way and not discriminate or charge differently based on user, content, website or application. Beyond Washington, some regulations that originate abroad become ad hoc global standards, such as data privacy rules or, as observers predict, proposals to regulate AI. And for telecom companies operating in different countries, diverging regulations and technical specifications can complicate market entry, regulatory compliance and operational efficiency.

18. Handling user data and privacy concerns: Telecom companies handle an extraordinary volume of data on customers, from standard personal identification and payment information to their real-time location to the very content being transmitted. Companies use some customer data (though not the content) for marketing insights and product development, and as allowed by the Federal Communications Commission, they also sell certain types of anonymized customer data to enterprises looking to analyze consumer behavior so they can target ads. Customers can go online and opt out/opt in to some of these programs. But telecom companies’ handling of data privacy is often a hot-button issue with consumers and privacy advocates, especially following cybersecurity breaches involving customer data. Although the United States doesn’t have an overarching national data privacy policy, various state and federal agencies cover aspects of consumer data. Also, Europe’s General Data Privacy Regulation, which includes hefty fines for noncompliance, set the global standard in 2018 and provides the model for state data privacy laws, such as the California Consumer Privacy Act.

Environmental and Social Responsibility

The telecom industry has work to do on environmental and social responsibility. In fact, EY listed telecom companies’ poor management of their sustainability agendas as one of the industry’s top 10 risks for 2023. As for social responsibility, the two biggest U.S. telecom companies merited a social score of only a “C” on Newsweek magazine’s list of America’s most responsible companies for 2023. Some of the challenges facing telecom companies in this area include:

19. Implementation of green technologies: 5G is touted by the industry as an inherently greener technology, but the jury is still out. Meanwhile, MTN Consulting reports that “network operators of all stripes are under pressure to reduce their carbon emissions and progress rapidly toward net zero.” Verizon, for its part, has set a climate goal of achieving net-zero emissions in its own operations and energy consumption by 2035, as well as reaching a significant reduction in the emissions from its supply chain.

20. Waste management and reduction strategies: E-waste is the world’s fastest growing waste stream and one of the telecom industry’s biggest waste-management challenges. Verizon reported reusing or recycling over 40 million pounds of e-waste in 2022, including cellphones, chargers, set-top boxes, network equipment, batteries and plastic components. According to STL Partners consultancy, tackling the e-waste challenge will take significant partnerships to set and achieve ambitious goals for recycling, reusing and championing the use of longer-lasting equipment within supply chains.

21. Role in bridging the digital divide: In 2023, about 24 million U.S. households lacked internet access, according to the U.S. Commerce Department. Rural telecom often lags behind the rest of the country when it comes to the implementation of broadband, due to the high cost of covering sparse populations. Federal funding is being made available to close the digital divide, including a new $48 billion program announced this year. But a report from the U.S. Government Accountability Office (GAO) has found that there are so many fragmented, overlapping broadband programs of this sort that it makes participation difficult for the communities most in need. The GAO is suggesting a national strategy for better coordination.

22. Ethical considerations in technology deployment and service provision: The CompTIA trade association recently created a list of ethical issues to watch for, including the misuse of personal information, careless use of AI, and a general lack of oversight and acceptance of responsibility. In other words, the group advised against the invasion of privacy in marketing strategies and product development, irresponsible adoption of disruptive technology without putting protections in place, and lack of clarity among telecom companies and their vendors about where responsibility lies in certain areas, such as cybersecurity.

Human Resources and Talent Management

The telecom industry needs to strike a balance between profitability and employee welfare, as one recruiter put it, with many moving parts on both sides of the equation. Talent challenges facing telecom companies include:

23. Need for a skilled workforce in evolving technologies: Telecom companies face a skills shortage that hinders the development and implementation of emerging technologies and innovative business models. This challenge persists, in spite of layoffs in both the telecom equipment and services sectors. Sought-after skills tend to be on the cutting edge of technologies, such as big data and AI, while other jobs are on the cutting block as automation replaces back-office workers in customer service. An overriding challenge for telecom companies is that “attracting top talent is challenging because it is no longer a high-growth industry,” according to Frost & Sullivan.

24. Ensuring employee satisfaction and motivation: When it comes to employee retention, telecom companies must walk a fine line between remote working and return-to-office mandates. When management consultancy KPMG surveyed workers across the related telecom, IT and media sectors in 2022, half of them said they stayed at their organization due to remote working flexibility. However, some telecom companies have been tightening requirements in the name of collaboration and workforce productivity. AT&T recently summarized steps it’s taking to ensure employee satisfaction, including redesigned healthcare and well-being benefits, paid parental and caregiver leave and a gender affirmation program for LGBTQ+ employees, in addition to what the company calls competitive compensation.

Manage Your Telecom Challenges With NetSuite ERP

Small and midsize companies in the telecom sector can step up to industry opportunities and challenges using enterprise resource planning (ERP) systems with integrated software for financial management, customer relationship management and human resources. NetSuite ERP can help telecom companies provide seamless customer experiences across products and services, ease consolidation of financial data and manage multiple subsidiaries efficiently. Specific benefits of a NetSuite ERP implementation for a telecom company include support for diversification of services through billing, the handling of customer relationships in call center environments and management of new and existing employees.

The telecom industry’s technology-fueled transformation is elevating the level of competition for existing and emerging services. To succeed, telecom players, large and small, must overcome a host of challenges in mastering new technologies, besting the competition, navigating regulatory requirements, rising to new mandates for environmental and social responsibility, and attracting and retaining the necessary talent.

Telecom Industry Challenges FAQs

What are the challenges of the telecommunications industry?

The telecom industry has been characterized by very high capital expenses, stiff competition and uncertain growth in recent years, dampening telecom companies’ business performance.

What is the biggest challenge facing the rural telecommunications industry?

About 24 million American households still don’t have broadband access, largely due to the high expense of covering sparse populations in rural areas. The U.S. government subsidizes some rural broadband buildouts, but NTCA–The Rural Broadband Association has expressed its members’ fears about losing these funds in the current political environment in Washington.

Why is the telecom industry so competitive?

The telecom industry involves many competitors, large and small, as the result of technological convergence in areas such as voice, internet and entertainment services, as well as the kinds of cloud computing and edge networking capabilities needed for the Internet of Things and other services that are considered the future of the industry.

What are the risks of telecommunication?

The telecom industry faces many challenges: technological, competitive, regulatory, financial and environmental. The telecom industry is a capital-intensive business in which competition, macroeconomic pressures and uncertain demand for new services have combined with shifting regulatory requirements and new environmental mandates to elevate business risk.