Emerging markets: Telecoms, from price wars to pricing power

Yet we believe one critical link in the chain remains largely ignored.

AI has driven a major rerating across almost every visible part of the data value chain, from chips and clouds to data centers and power equipment. Yet telecom operators may remain among the most unloved parts of the AI value chain, despite owning the networks through which that data must ultimately travel. They are, in effect, the highways of the digital economy.

This disconnect is particularly interesting in emerging markets (EMs). Many EM telecom markets are moving from fragmented price wars towards more rational industry structures, just as 5G is allowing operators to carry larger volumes of data at lower unit costs. The result is a sector that may be shifting from CapEx-heavy competition towards pricing power, operating leverage and renewed strategic relevance.

From data boom to margin squeeze

The last mobile data boom should have been a golden period for telecom operators. Smartphones became essential, consumers spent more time online, and 4G made social media, streaming, gaming and mobile entertainment part of everyday life. It was the digitalization of leisure, and telecom networks enabled it. Yet for many operators, especially in EM, the result was not stronger returns. It was margin pressure.

The problem was that data usage grew faster than monetization. In many EMs, 3G arrived later than in developed markets, leaving operators with a shorter window to earn returns before 4G required another major round of investment. At the same time, competition was intense. Regulators pushed for lower prices and smaller challengers used aggressive tariffs to win share. Consumers used more data without operators being able to charge meaningfully more for it (Chart 1).

That pressure eventually changed the shape of the industry. Price wars weakened smaller operators, made it harder to fund new infrastructure, and forced consolidation. In several markets, crowded competitive structures have given way to three-player or even two-player markets.

That is why the next data cycle may look different. AI could drive the digitalization of labor just as 4G drove the digitalization of leisure, but this time it is arriving in markets with more rational competition, lower unit data costs and a better chance of monetizing rising usage.

The overlooked data highways

This is the part of the AI debate that markets appear to be overlooking. The visible enablers of AI – from semiconductors and cloud platforms to data centers, power equipment, and cooling systems – have all been rewarded. Telecom operators have not benefited to the same degree, despite owning the networks through which data ultimately must move.

That feels like a disconnect. AI is not only a computing story – it’s also a data movement story. Whether the use case is AI services delivered from the cloud, enterprise automation, connected devices, or edge computing, data needs to travel between users, devices, and infrastructure. Data centers may be the factories of the AI age, but telecom networks are the highways that connect them.

Timing is important

Operators are not starting from zero. Years of investment in 4G and 5G mean many networks can already carry much higher volumes of traffic, while 5G reduces the unit cost of data. Ongoing investment will still be needed, but the opportunity may come through better utilization of existing infrastructure rather than another speculative build-out cycle.

The other key difference is competition

In the last data cycle, rising usage was often competed away through aggressive pricing, particularly in markets with too many operators chasing share. That backdrop is now changing. Across several EMs, consolidation has reduced the number of players and encouraged more rational behavior, giving operators a better chance of monetizing the data growth that runs across their networks. This does not remove the risks from regulation or future investment cycles. It does, however, mean the next wave of demand is arriving in a more supportive industry structure than the last one (Chart 2).

The argument is not just theoretical. It is already visible in country-level industry structures.

A global pattern

The shift in industry economics is not occurring in isolation. Across several EMs, years of consolidation, investment, and competitive restructuring are beginning to reshape how telecom operators generate returns. While the pace and extent of change vary by country, a common pattern is emerging: fewer competitors, greater pricing discipline, and improved opportunities to monetize rising data demand.

The following case studies illustrate how these dynamics are beginning to play out across several key EMs:

Endnotes

¹ EBITDA stands for earnings before interest, tax, depreciation and amortization. A measure of a company’s profitability. Because EBITDA eliminates the effects of financing and accounting decisions, it is often used to compare profitability between companies.

Important information

Past performance is not an indication of future results.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

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