Telco sector faces rising risks in AI, ineffective transformation and evolving geopolitical environment

• Privacy, security and trust are the top risks facing telcos, with responsible AI in focus
• Ineffective transformation through new technologies now ranks second
• Evolving geopolitical environment is a new entry in fifth on the Top 10 risk radar, adding to external uncertainties facing telcos

Underestimating changing imperatives in privacy, security and trust remains as the top risk facing telecommunications companies in 2026, underlining the continued urgency of challenges in these areas for the industry. According to the annual EY report, Top 10 risks in telecommunications, telcos’ responsible artificial intelligence (AI) practices are falling short, while their cybersecurity functions feel under-prepared for a shifting threat landscape. And while a changing geopolitical environment brings new challenges, telcos can also take advantage of the drive towards digital sovereignty. 

The EY Responsible AI Survey¹ reveals that only 59% of telco respondents state they have a robust methodology for identifying, assessing and mitigating the risks associated with AI, against 66% across all sectors. In terms of specific measures used to provide trust in AI systems, telcos are less likely to leverage internal audits, AI ethics policies and third-party attestations, compared with all other sectors.

A further cause for concern is that telcos’ cybersecurity functions are struggling to broaden their role and remit while responding to an evolving cyberthreat environment. The leading internal challenges cited by industry chief information security officers (CISOs) surveyed in a recent EY research study² are inadequate cybersecurity budgets (55%), difficulties in balancing cybersecurity with the speed of corporate innovation (40%), and a lack of cybersecurity input into cross-function leadership decision-making (36%). Increasing the strategic impact and influence of the cybersecurity function will require greater commitment across telecoms organizations.

Cédric Foray, EY Global Telecommunications Leader, says:

“Telcos appear to be lagging behind other sectors in the adoption of measures to improve trust in AI. Customer receptivity to AI is not a given, meaning greater focus on responsible AI frameworks is essential. As part of this telco leaders should be engaging regularly with cyber specialists to ensure that their approach is strategically fit for purpose.”

Ineffective transformation through new technologies

Challenges with transformation via new technologies rank second this year, with several factors hampering their efforts to scale up their AI plans. According to the EY Responsible AI Survey,³ telco CEOs respondents’ top concerns around AI adoption include resource constraints and the difficulty of developing effective governance frameworks (both 55%), ahead of regulatory complexity (53%) and challenges around use case prioritization (40%). These uncertainties are resulting in companies taking dramatically divergent approaches to AI: while 33% are planning to accelerate future AI investments on the back of previous positive results, almost as many – 32% – are scaling back or reconsidering future AI investments.

Compounding these pain points, telcos also face ongoing pressure to decommission legacy IT systems and older network technologies –- vital if they are to increase levels of efficiency and agility.

The challenges around new technologies are compounded by the long-standing but fast-increasing pressures to decommission legacy IT and network elements. Network switch-offs are progressing in both mobile (2G/3G networks) and fixed-line (copper). During these transitions it is vital to manage and mitigate risks carefully to maintain network reliability and manage customer device and service upgrades appropriately.

Inadequate talent, skills and culture management

Talent and skills rank third as the top risks facing telcos in the report. Telcos’ need to acquire new skills is being driven by developments ranging from the advancing automation of network and IT functions to in-house platform development and the integration of multi-vendor technology solutions. Industry research⁴ shows that these factors are driving up demand for specific skills, with the roles and capabilities where demand is greatest now led by cybersecurity (67%), AI and machine learning (65%), IT infrastructure (63%) and data science (60%). Crucially, many of these roles are especially difficult to fill, subject to barriers including limited availability of the relevant skills; too many companies striving to recruit the same people; and telcos’ inability to pay the competitive level of salaries being offered in sectors like tech or financial services.

Adrian Baschnonga, EY Global Technology, Media & Entertainment and Telecommunications (TMT) Lead Analyst, says:

“The telco skills shortage is becoming more pronounced, particularly as operators look to take advantage of new growth opportunities in areas like AI while ensuring they have the right competencies in place to create new customer value propositions. Given the ongoing competition for new talent, reskilling and upskilling initiatives are assuming ever greater importance, while telcos can also collaborate with technology partners in new ways to mitigate talent gaps. Looking ahead, changes to workforce culture – including greater emphasis on collaboration – are just as important if telcos are to maximize the impact of new skills and capabilities across different corporate functions and lines of business”.

Backdrop of geopolitical tensions add to external uncertainties

The external pressures facing telcos are exacerbated by the current geopolitical environment, which is a clear cause for concern, ranking fifth place on the top 10 risk radar. In the May 2025 edition of the EY CEO Outlook Study⁵, 22% of the telco leaders surveyed cite geopolitical tensions as a threat to growth in 2025, alongside broader macroeconomic uncertainty (18%) and related developments in trade and fiscal policies (13%). Telco CEOs are also sensitive to a range of global trade disputes, with 17% of respondents believing that US-Japan tensions would have the biggest impact on their business, followed by US-China tensions at 13%.

While telcos’ direct exposure to the potential impacts of tariffs is relatively limited, the same is not true of their upstream suppliers such as device manufacturers and network vendors. An overwhelming 82% of telco respondents are confident of their ability to pass potential price increases onto customers, but increased device costs may add to lengthening handset replacement cycles. Against this background, geostrategic activities inside companies are on the increase: another EY study⁶ finds that 37% of geostrategic actions are being undertaken at multiple levels within organizations in 2025, up from 24% in 2021.

Famke Krumbmüller, EY-Parthenon EMEIA Leader, Geostrategic Business Group, says:

“The challenges created by a changing geopolitical environment are balanced by some opportunities for telcos to generate new value. National technology sovereignty agendas offer telcos a potential upside.”

Foray, adds:

“It opens the possibility for them to play a more explicit role as infrastructure champions enabling national technology sectors to flourish, following shifts in digital policies to favor the development of sovereign cloud and AI infrastructure services.”

“To stay resilient and competitive, operators must both anticipate and address emerging risks while continuously monitoring for new threats. It is essential to assess how current risks may shift over time and adapt strategies, accordingly, recognizing that the risk landscape is always evolving.”

The full list of Top 10 risks in telecommunications for 2025 are:

1. Underestimating changing imperatives in privacy, security and trust
2. Ineffective transformation through new technologies
3. Inadequate talent, skills and culture management
4. Inadequate network value proposition and performance
5. Insufficient adaptation to evolving geopolitical environment
6. Inability to take advantage of new business models
7. Ineffective engagement with external ecosystems
8. Failure to respond effectively to changing customer needs
9. Poor management of the sustainability agenda
10. Inadequate operating models to maximize value creation

The full report outlining the Top 10 risks can be found here.

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About the report: purpose and methodology

Top 10 Risks in Telecommunications 2026 is the latest in our ongoing series of reports designed to pinpoint the most critical risks facing the telecommunications sector. Our analysis draws on the EY insights program by leveraging insights from our primary and secondary research and enriching them with the evolving perspectives of our sector practitioners.