How AI is changing the global telecom industry – and risks are mounting for insurers

The rapid rise of artificial intelligence (AI) is reshaping the landscape of the telecommunication, media, and technology industries. The launch of ChatGPT and other large language models has accelerated the use of AI applications.

However, the popularity of AI has led to greater energy requirements, especially for AI-focused data centers, which require significantly more power than traditional ones. At the same time, telecom companies are facing challenges in expanding networks to support AI, requiring significant investment in fiber optics and infrastructure.

“The increased energy utilization that an AI-focused data center requires is massive – as much as a small city,” said George Haitsch (pictured right), technology, media and telecommunications industry division leader at WTW.

“It’s significantly greater than typical data centers have been in the past. Major AI providers like Microsoft, Apple and Google need to quickly pivot to have greater capacity to support the utilization of the tools that they’ve been rolling out.”

Energy and telecom infrastructure demand climbing

The issue has spurred renewed interest in nuclear energy as a viable power source, said Haitsch, with discussions now focusing on small mobile nuclear reactors to meet the immense energy needs of these facilities.

Experts have noted concerns that telecom companies may struggle to keep up amid growing demand for AI and machine learning technologies.

Firms are leveraging solutions like network slicing and edge computing to close this gap, but companies’ investment levels vary, according to Jose Mercado (pictured left), telecommunications subsector leader for North America and Latin America at WTW.

“Telecom companies are working diligently to address these issues, focusing on expanding their networks to support advanced technologies,” Mercado told Insurance Business. “This includes upgrading transport networks, enhancing fiber optic infrastructure, and integrating high-tech systems to meet growing demands.”

“There are existing solutions, but their effectiveness largely depends on each carrier’s business model,” Mercardo noted.

For example, he said, network slicing protocols allow carriers to segment their networks for different services and markets. Additionally, edge computing and cloud-based services help address capacity gaps.

Many carriers are also forming partnerships with major cloud providers to enhance their capabilities. Edge computing is particularly valuable for supporting the Internet of Things (IoT) as it provides reliable computing resources.

Risks and exposures as telecom firms expand to meet AI usage demands

This rapid expansion to meet the growing demand posed by AI involves substantial costs and raises various liabilities for telecom firms. Mercado stressed the importance of proper network management and investment to bridge gaps, which insurance can also play a role in.

“Liabilities are rapidly increasing for telecom companies, with cyber risk being a significant concern,” said Mercado. “As they expand into remote or hazardous areas, insurance can help manage these risks. Business interruption is also a concern, as it can greatly impact profits and earnings, making it especially important for capital-intensive telecom operations.”

Despite the challenges, there is a strong sense of enthusiasm and proactive investment in this sector.

“The industry is clearly excited about the opportunities AI presents,” said Haitsch. “It has been expanding its capacity aggressively, moving from 3G and 4G to 5G and now looking ahead to 6G.”

In the US, the Broadband Equity and Deployment (BEAD) program has introduced $42 billion in investment to expand high-speed internet in underserved areas. The initiative, which WTW is actively supporting with insurance and surety solutions, underscores the telecom industry and the government’s joint commitment to advancing communication infrastructure and bridging digital divides.

Haitsch highlighted the “growth opportunities” ahead, and the role of insurance in facilitating telecom investments.

“Insurance is a hedge, a risk financing tool, that can help smooth out the edges and ensure (telecom firms) can proceed with confidence in terms of the investment and the construction that’s going to be required,” said Haitsch. “We’re excited to be a partner to the telecommunications industry, and we’re seeing a lot of interaction and excitement around managing the challenges.”

What are your thoughts on the increase in telecom infrastructure and energy demands due to AI? Please sound off in the comments.