HSBC analysts identified SK Telecom (SKT) and SoftBank Corp as pursuing the most ambitious AI paths among operators across Asia Pacific, but highlighted the challenges the pair face in differentiating and competing against big technology companies.
Both operators see AI as potentially transformative and have moved faster than peers in confirming partnerships and investments, Neale Anderson, head of APAC telecoms research, and Nicolas Cote-Colisson, global head of communications equity research, highlighted in a report.
SKT invested in US-based AI company Anthropic before Amazon, has a portfolio of 12 related investments and has taken a number of steps to reposition itself as an AI company.
In September, SKT vowed to raise AI-related investments from 12 per cent of revenue between 2019 and 2023, to 33 per cent over the next five years.
The operator also aims to generate 36 per cent of revenue from AI-related services by 2028, up from 9 per cent in 2022.
HSBC’s analysts acknowledged what services are categorised as AI is open to some debate, noting it seems everything which might grow has been put in the basket, which implies non-related business will barely grow to 2028.
SKT detailed plans to transition into an AI company in 2022, with subsequent moves to reorganise to drive the initiative and a $100 million investment in Anthropic.
While SoftBank’s near-term financial commitment to AI is smaller than SKT’s, C-level executive focus is just as intense, with employees at all levels encouraged to rethink their approach and business practices with generative AI in mind, the analysts stated.
SoftBank’s AI focus is geared towards corporates: the HSBC analysts note many SMEs in Japan have yet to complete or even begin to digitalise their operations and this is where the company sees the most opportunity.
HSBC lowered its medium-term capex estimates for the two companies. Its previous forecast was based on a percentage of sales, but it now believes the guidance was too high, as it expects a larger proportion of future revenue to come from services and software, which are less capital intensive.
The operators are challenged by the fact they are mostly national in scope and have limited R&D capabilities compared with tech companies which are multinational and deep-pocketed. But on the upside for operators, the analysts noted each country is likely to want a national champion and can often aid companies that invest in a capital-intensive project.
HSBC suggested the clearest opportunity seems to be in providing the infrastructure an AI boom would require.
The analysts pointed to Softbank’s huge investment in a new data centre facility, focusing on using renewable energy, adding growth in generative AI is likely to drive demand for capabilities “unique to 5G and enable pricing based on network quality”.
They argued the network “is still the telco’s greatest asset” and backed “Softbank’s re-orienting of investment and network topology with AI in mind” as “the right approach”.
SKT earlier outlined plans to partner to expand its presence in the global data centre business and aims to double its domestic data centre capacity by 2030.
Another potential area is cost-cutting.
Customer-care applications driven by AI could enable operators to reduce outsourcing and staff costs, and also move towards an online sales model.
HSBC suggested an AI sales bot may be better at recommending and upselling products, particularly if it gathers details of customer usage across different categories.
SKT already committed to using AI in marketing and customer contact centres, and to improve operational efficiency of infrastructure, targeting costs reductions of 20 per cent to 30 per cent.
A more software-driven approach should also require fewer engineers to maintain and optimise network assets.
Rakuten Mobile in Japan used a software-based approach to reduce headcount in its engineering department, significantly reducing operating costs.
HSBC’s analysts see strong potential to deploy AI in the customer service and network sides, and underscored the importance of C-level backing.
“Without this buy-in, take-up of new technologies is often slow.”
They believe SKT has a wider range of AI options, with its numerous investments and an existing range of services being reoriented, while SoftBank has moved quickly to align its infrastructure investment with potential demand for the technology.