Fujitsu’s Policy Twin: Revolutionizing Public Policy with Digital Twins

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The “Social Digital Twin” is born

In February TBR met with a Fujitsu team led by Akihiro Inomata, Ph.D., Senior Project Director, Social Digital Twin Core Project, Fujitsu Research, Fujitsu Limited, to discuss Fujitsu’s Policy Twin, a creative application of digital twin technologies to public policy. The following reflects both that discussion and TBR’s ongoing research and analysis around Fujitsu.
 
Fujitsu’s research of “Social Digital Twin” and efforts to bring digital twin concepts and technologies to bear on social issues dates back a few years, although the company initially did not describe the work as “Policy Twin.” As early as 2022, Fujitsu and Japan’s Tsuda University started joint research for community healthcare to find better solutions to bottlenecks in the healthcare delivery processes. Fujitsu used similar approaches to tackle Japan’s healthcare needs that it had previously successfully used in other domains. These involved what Inomata called “green shared mobility” on a U.K. island, EV charging stations in India, and traffic in Pittsburgh.
 
Leveraging lessons learned from those engagements and seeing the applicability of digital twins beyond the confines of the physical world, Fujitsu conceived the Policy Twin. Using its Policy Twin, Fujitsu helps public sector clients recreate new policies from policies generated from the clients’ existing policy documents, and, critically, according to Inomata, allows for a “Digital Rehearsal” that can be used to verify the effectiveness and impact of policies in advance, based on real-world data. He added that the policy twin approach helped Fujitsu “solve social challenges … by understanding human behavior and social movements through Social Digital Twin.” Policymakers at any level could, with Fujitsu’s help, test variations of policies and evaluate the outcomes using Policy Twin, calibrating the scenarios based on desired outcomes, all before actually implementing any changes.

Policy Twin success story

Inomata outlined a few critical components for successful implementation of digital twins in a nonphysical world:

  • Fujitsu uses a logic model for running simulations, but the reference policies should be coming from the same business or framework. Fujitsu’s Policy Twin approach, for example, could not use policies in public health to digitally rehearse tax policies.
  • Policies must be machine-readable, which typically is not an issue as all public policies are publicly available. The challenge, of course, comes when policies are unclear, inexact, contradictory, or understood but not written down.
  • Fujitsu’s approach must begin with understanding the underlying social issues. Similar to consulting and technology engagements, implementations succeed when directed at specific business problems. Fujitsu’s Policy Twin works best when the stakeholders, including Fujitsu, have clearly defined problems and desired outcomes.

Inomata and his team described the example of Fujitsu’s work with Japan’s Tsuda University around preventive medicine approaches and cost savings that were attributable to the use of Policy Twin technologies. Practically, Inomata walked through a recent project on how the local government was able to reduce expenses and improve the overall population health by using Policy Twin to create optimal policies around clinic visits. The Fujitsu presentation noted developed policy options of the preventive medical engagement that could reduce medical costs and improve health outcomes significantly after only one year post-implementation. Additionally, the Fujitsu presentation projected developed policy options that double both cost savings and health outcome improvements in preventive healthcare trial.
 
Fujitsu’s presentation also set ambitious targets for 2025 and 2026, noting that the Policy Twin approach could be applied to societal problems such as “service restructuring to address workforce shortages, disaster prevention and mitigation, and enhancing supply chain resilience.” Inomata also confirmed that the company intends to put the Policy Twin approach under the Uvance Wayfinders umbrella.

Fujitsu shows how technology can be used to benefit society

Applying digital twins to the nonphysical world — and to an inherently political part of the nonphysical world — takes courage and conviction, which are not attributes TBR typically writes about when covering IT services and technology companies. As Figure 1 from Fujitsu shows, the company does not lack for ambition: “Technology to predict future and design society.” Critically, in TBR’s view, Fujitsu will scale its Policy Twin initiative within the embrace of Uvance.
 
As TBR reported last year about the company’s strategy, “Fujitsu will focus on technology consulting, rather than McKinsey-style business consulting, playing to Fujitsu’s legacy technology strengths. In TBR’s view, technology-led consulting reflects the current demand among enterprise consulting buyers to infuse every consulting engagement with technology, a trend well underway before the hype began around generative AI. Fujitsu’s leaders added that Uvance Wayfinders — essentially business and technology consultants — are able to pull together all of Fujitsu’s capabilities and offerings.”
 
Stepping back from the specifics of Policy Twin and its place within Fujitsu, the overall approach of bringing data-driven, digital twin-enabled “digital rehearsals” to public policy strikes TBR as a substantial positive societal contribution, rooted firmly in Fujitsu’s technology legacy, capabilities and innovations. TBR will be watching closely to see which societal challenges Fujitsu takes on next.
 

Figure 1


 
Definitions of terms

  • Social Digital Twin: Fujitsu’s proprietary digital twin technologies
  • Policy Twin: A core technology within Social Digital Twin
  • Digital twins: general digital twin technology

 

Trump Could be the Worst (or Best) Thing Ever for the Telecom Industry

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TBR perspective

If the key takeaway from Mobile World Congress 2025 (MWC25) in Barcelona, Spain, could be boiled down to one word, that word would be: warning.
 
Though warnings for the telecom industry have been trumpeted ever since the LTE cycle underwhelmed and failed to bring significant new revenue to telcos, TBR notes that the warning has reached a new level and that the telecom industry faces arguably the most uncertain period in its 150-year history.
 
There is real concern that endemic, chronic issues that have been challenging the telecom industry for many years could be compounded by the agenda and policies of the new U.S. administration, which has created global uncertainty regarding geopolitics, the strength of nation-state alliances, trade policy, economic development and other key areas, ratcheted up to levels not seen since the Cold War.
 
Amid this uncertainty, the modus operandi for telcos and their network vendors is to shrink back to basics and cut costs. With catalysts for sustainable, ROI-positive new revenue for telcos remaining unclear, the will to spend more on capex is simply nonexistent. Rather, telcos are becoming more fixated on cost reduction, especially through AI and M&A.
 
Using history as a guide, deep structural change and regulatory reform, such as that yearned for by the telecom industry, typically only occur in times of monumental crisis, such as severe macroeconomic deterioration, which tends to force governments into action and drive broader restructuring and changes at organizations.
 
For example, two of the most significant, large-magnitude industrial changes across major societies in the past 150 years occurred during the Great Depression of the 1930s, which reshaped labor and industrial dynamics, and the Great Recession of 2007-2009, which reshaped the financial services industry and real estate market. Telecom will, unfortunately, need a similar economically driven crisis to bring about the changes that the industry desperately needs.
 
The telecom industry might finally be getting the fundamental, transformational change it needs, and President Donald Trump may well be the catalyzing agent for this change.
 

MWC25: Disruptive Technologies and Business Models Create New Opportunities for the Mobile Ecosystem
 
Join Principal Analyst Chris Antlitz and Senior Analyst Michael Soper Thursday, March 20, 2025 for an exclusive deep dive into top takeaways from Mobile World Congress 2025. The pair will also discuss how emerging opportunities are likely to drive technology and business model disruption and impact markets.

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Impact and Opportunities

Europe risks reaching a point of no return and dragging its telecom industry down with it

Europe is regressing, and its way of life is threatened unless drastic change is implemented. This was a frequently discussed theme at MWC25. Although Europe has a leading educational system and talented workforce, regulation and taxation in the region have become so restrictive that they are causing chronic disinvestment, brain drain (mostly to the U.S.) and capital flight (again, mostly to the U.S.).
 
There has also been an acceleration in the decline of birth rates, which portends future, structural headwinds for European society. Though it is not too late to bring Europe back from the brink and reassert the continent as a major powerhouse in the global economy, the window to fix the situation is closing.
 
For example, TBR’s research suggests Europe is approximately five to seven years behind other first-world economies in key technological areas, such as 5G, cloud, AI and quantum computing, and the gap is widening as the pace of technological change accelerates.
 
How Europe responds to the impact of the Trump administration will solidify the bloc’s future. Broad-based, structural reform is required to ensure the highest probability of success, with European Union (EU) member states acting more like one, unified bloc that is leveraging the best that each state offers.
 
As part of this, a regulatory overhaul is required, with increased domestic investment and less restrictive encumbrances to economic development enacted. Additionally, M&A, especially as it pertains to nationally important entities, such as telecom operators, must be allowed in order to attain a competitive level of scale and increase the health and financial well-being of these sectors.
 
There are simply too many communication service providers (CSPs) in Europe (between 100 and 200, depending on how operating companies [OpCos] and subsidiaries are counted), most of which are sub-scale, impacting their ability to innovate and invest, especially on the world stage.
 
With three CSPs now remaining in most major countries, Europe’s telcos are minnows in a sea of big fish. More years of the same will further constrict and make the telecom industry even more unhealthy. Structural reform must happen now.
 
Relevant documents pertaining to the future of the EU, such as the Draghi and Leiter reports, were frequently mentioned at MWC25, and many European influencers and decision makers are using those documents to draw ideas from and promote change.
 
A potential silver lining for Europe is that Trump’s new world order may usher in a renaissance for the continent, whereby the EU bands together in solidarity and cooperation to address its weaknesses and focus on becoming competitive again on the world stage.
 
Though the deck is stacked against Europe due to the sheer number and scope of problems that the continent faces, recent events that coincided with the timing of MWC25, such as Germany’s new stance on debt and defense spending, could shake the continent awake from its multidecade slumber and be a watershed moment for structural change.

Growth remains the No. 1 problem for the telecom industry, still with no viable solution

When adjusting for inflation, the telecom industry is shrinking and has been for some time. Though mobile has been offsetting chronic weakness in legacy wireline businesses, even now mobile is exhibiting maturity from a global perspective, with industry-level revenue growth rates flatlining.
 
While it is true that fixed wireless access (FWA) is a new driver of revenue growth, thanks to 5G, the size of the pie is likely to continue shrinking on an inflation-adjusted basis as CSPs fight to attract and retain new subscribers and engage in pricing tactics, such as offering discounts for bundling (aka convergence) to achieve this goal.
 
The reality is that network APIs, edge computing (including AI inferencing at the edge), network slicing and other areas frequently viewed as growth opportunities for telcos over the past few years are still not yielding substantial revenue, and the revenue that is derived from these areas is more cosmetic (i.e., revenue positive but lacking profitability and scale) than genuine (i.e., ROI positive) in nature.

AI gains traction and becomes more sophisticated

One area in which leading telcos are making progress is applying generative AI (GenAI), and now agentic AI, to boost productivity and reduce costs. TBR notes that the increased level of sophistication of AI solutions demonstrated at MWC25 shows significant progress since MWC24, a bright spot for the industry.
 
Customer care and billing remain the most popular domains to apply AI currently, and these areas represent low-hanging fruit, but sales, marketing and, increasingly, the network domain will all be impacted by AI as well. Many use cases and business cases for AI and GenAI in the telecom industry make logical sense and have the potential to produce profoundly significant business outcomes, especially related to cost efficiency.
 
Technological readiness for and commercialization of AI and GenAI are in process, and much more innovation is in store. Additionally, AI will take on increased importance as telcos navigate the deteriorating geopolitical and economic environment and look to sustain their bottom lines.

5G standalone (SA) adoption remains extremely sluggish, and the gap is widening between leading operators and late adopters

The cost and complexity associated with deploying a 5G core, coupled with the lack of a clear ROI from having a 5G core, continues to stifle the pace of commercial deployment of the technology. While approximately 326 CSPs globally have deployed 5G to date, just 123 have officially signed deals to purchase and deploy a 5G core, and about half of those (62 out of the 123 operators) have not actually begun commercial deployment.
 
Additionally, of the 61 CSPs that have deployed a 5G core, most are not what some consider a “complete 5G network,” meaning the architecture utilized for the 5G core is not cloud-native. Given that a 5G core is a prerequisite for network slicing, deploying forthcoming 5G Advanced features, and using other key features associated with 5G, such as for B2B use cases, this means most CSPs that have deployed 5G to date are still not able to participate in these nascent areas.
 
CSPs cannot hope to capture revenue from network slicing, AI inferencing at the edge, or forthcoming use cases enabled by 5G Advanced if they do not invest in the infrastructure needed to provide these services at scale and with low latency. Most CSPs’ cautious capex strategies are hindering their future revenue growth opportunities and risk ceding the value capture from these services to hyperscalers, most likely, or to their own incumbent vendors that elect to bypass the CSP middleman.

FWA is starting to get the attention it deserves from telcos but still has significant untapped potential

TBR continues to believe that FWA represents one of the biggest opportunities for mobile network operators to monetize their 5G investments and drive scalable revenue growth. Though CSP deployment of 5G FWA continues to grow, most CSPs keep underestimating the potential of the technology, likely because FWA ties up a lot of spectrum resources for relatively low average revenue per user (ARPU). There is also an embedded industry bias toward full fiber, though TBR believes this mindset has begun to soften as FWA has proved its staying power.
 
Technological innovations currently available (e.g., multiband carrier aggregation, beamforming, extended range millimeter wave, non-line-of-sight antenna design, New Radio Unlicensed [NR-U], integrated access and backhaul [IAB], silicon advancements) are likely to bring dramatic improvements in network performance, energy efficiency, and the usability of spectrum to support services such as FWA at large scale. FWA customer-premises equipment (CPE) is also becoming more cost effective to buy and deploy.
 
TBR maintains that 5G FWA should be thought of as wireless fiber and that the notion of having to deploy fiber to every business and residential premises globally is not only economically unfeasible but also unrealistic from a pure time-to-market standpoint to meet digital equity initiatives. 5G FWA can address these challenges and is a far more realistic and economically feasible technology to help the world bridge the digital divide, bring more competition into the global broadband market and support new use cases.
 
Changes to the Broadband Equity, Access, and Deployment (BEAD) Program and other stimulus programs in the U.S. to legitimize FWA (and satellite broadband) is a great step forward in leveraging fiber alternatives without sacrificing significant performance and other benefits that fiber-to-the-premises provides. More than 90% of households and most businesses globally do not need more than 100Mbps of broadband speed, mostly thanks to advancements in video compression technologies.
 
Over the next few years, TBR believes the industry’s perception of FWA will shift from being viewed as an “intermediate, good enough” solution pending fiber rollout to a legitimate fiber alternative, and that ultimately up to 50% of global premises (residential dwellings and businesses) could be addressed with FWA, with the balance being served by Fiber-to-the-X (FTTx) and satellites.

Satellite industry enters the telecom hen house

Though there are significant benefits for mobile network operators (MNOs) (and their customers) to partner with satellite connectivity providers, there is also a growing undercurrent of concern. Led by Starlink, which had a strategically located booth in one of the prominent courtyards of the MWC venue, telco leaders are starting to realize that satellite operators pose a legitimate competitive threat.
 
Non-terrestrial networks (NTNs) are advancing quickly, with a broader range of smartphones now off-the-shelf compatible with satellite networks, just as they are with terrestrial networks. From a services perspective, satellite connectivity has advanced from basic SOS messaging services to full text support, with voice and data services on the road map for later this decade, all of which can be utilized by the latest popular smartphones.
 
Satellite broadband is even starting to compete against terrestrial broadband, especially xDSL and FWA, an inflection point made possible by the steady reduction in satellite CPE costs, which historically made satellite connectivity too expensive to be an economically feasible alternative to terrestrial broadband options, as well as significant increases in downlink speeds.
 
Ultimately, according to TBR’s research, it is conceivable that up to 100 million premises globally could be supported by satellite broadband providers, with Starlink likely to remain the frontrunner in the ecosystem.

Defense industry poised to become a major growth area for network vendors

The Russia-Ukraine and Israel-Hamas wars have demonstrated how warfighting has evolved with technology, prompting a reassessment of military strategy, assets and the production of military-related equipment, especially by the U.S. Department of Defense and NATO members in Europe. Additionally, with the U.S. now retreating from Ukraine, Europe is forced to revitalize its own military industrial complex. All of this incurs more spend on military and defense, with mobile technology set to be a prominent feature of new systems and solutions.
 
5G, 6G, private cellular networks, edge computing and AI will all be leveraged in some way in modernized military solutions. Of the more than $13 trillion that it is estimated will be spent on defense globally through the rest of this decade, TBR expects many billions of dollars of this amount to flow to the telecom industry, with Nokia, Ericsson and a broad range of other vendors as well as operators providing the bulk of this equipment and services.

Conclusion

Telecom operators remain unhealthy, and the prognosis is deteriorating. One of the first things the industry needs is a comprehensive reassessment of the regulatory environment to give telcos some breathing room and flexibility to accelerate their digital transformation journeys. A catalyzing event, which usually stems from crises, is needed to force the telecom ecosystem to change, and for regulators to create a friendlier economic and competitive environment.
 
TBR maintains that the telecom industry will look very different by the end of this decade and that significant consolidation will need to take place to create more financially healthy and sustainable telcos. It is possible that Trump and his unconventional policies will be the catalyzing agent to usher in this new phase of telecom industry evolution.

TBR Case Study: Price Benchmarking

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Bridge the pricing gap with data-driven insights from TBR

Introduction

In the absence of validated data, many professional and IT services firms rely on pricing strategies of the past and anecdotal, and often biased, inputs from field sales and partners within their ecosystem. To optimize both margin and market share, a data-centric, live “state of the market” pricing analysis can solve many of the unanswered questions services leadership and pricing directors face.

Client’s background

The client for this price benchmarking project was a global Top 3 hardware OEM. The company provides a diverse range of hardware and related services globally across industries such as healthcare, financial services, education and other key industries.

Client’s challenge

The client needed to better understand the competitive pricing environment for consulting and residency services in the U.S. market, including the price points and pricing strategies utilized by key competitors for comparable roles and services. The client sought data and insights on competitive pricing, as well as recommendations on how to translate the insights into executable strategic actions that could be deployed to optimize its near-term and long-term services competitiveness in the U.S. market.
 

Preview a TBR Tailored Services custom competitive pricing engagement, showcasing a rate card assessment and managed services pricing outputs

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How TBR helped

Ongoing company coverage and years of dedicated pricing research have allowed TBR to refine and perfect our methodologies to deliver precise, data-driven insights such as street price, list price, deal size-to-discount ratios, staffing levels and levels of automation. Our expertise enables TBR to identify market trends, optimize pricing strategies and drive competitive advantage.
 
TBR’s unique price benchmarking capabilities include:

  • Primary research that ensures existing research is rooted in direct, current market perspective from competitors and customers
  • Fully customized research plan that ensures data captured is aligned to TBR’s client taxonomies and is directly comparable to internal pricing
  • Outputs that yield quantitative pricing comparisons AND qualitative contextual insights on pricing models, pricing structures, discounting and other commercial tactics

To capture apples-to-apples results, TBR typically fields pricing research by devising a set of hypothetical deal parameters to frame market insiders’ pricing inputs. Upon project launch, TBR collaborates with the client to generate services and deal configuration descriptions to best mirror real-world market conditions and ensure outputs will be representative of the client’s services business.

  • Services scope: Services covered in the engagement and anticipated services deliverables; also includes considerations such as type of services engagement (e.g., residency versus project-based)
  • Technology scope: As applicable, any specifics on the types of technologies encompassed by the engagement per the services deliverables as outlined in the previous bullet
  • Commercial scope: Contract length/term and anticipated deal value in dollar terms as applicable

Client’s results

TBR strives to bring contextual understanding of the multitude of professional services, from management consulting to managed services, security services to attached services.
 
This client was able to capitalize on the investment in pricing research by:

  • Better understand the necessary resource mix to support its deal pursuits and respective pricing schemes (staffing levels and automation mix)
  • Optimally calibrate pricing and go-to-market strategies tied to end-customer outcomes
  • Reframe the value of the partner ecosystem through data-centric lens (reset commercial deal structures and long-term partnership models)
  • Understand implications of new technologies such as GenAI and multicloud on its pricing and profitability (reduce costs from the equation)
  • Invest in hiring and training geared toward what’s next to support elastic pricing and commercial models

Learn more

TBR leverages a proprietary analytical approach to uncover list price vs. street price, delivery models, rate card breakdowns and discount frameworks, developed over 20 years of analyzing professional and IT services vendors and their pricing habits, strategies and discount structures. Each engagement utilizes multiple research tools, including vendor, partner and customer interviews and surveys, with key focus areas spanning competitive intelligence and benchmarking, customer intelligence, financial modeling, go-to-market enablement, and opportunity analysis.
 
Click here to download a free preview of a TBR Tailored Services custom competitive pricing engagement, showcasing a rate card assessment and managed services pricing outputs.

Saudi Arabia’s Message to Global Firms: Deliver Real Value or Step Aside

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Moratorium on PwC business tells cautionary tale

My previous and current careers collided last week when the Kingdom of Saudi Arabia’s Public Investment Fund (PIF) announced a one-year moratorium on doing business with PwC (details continue to emerge even as I type this and the exact contours of the new Saudi PIF and PwC arrangement will likely shift, so I won’t try to evaluate a moving target). Having spent 13 years as a U.S. diplomat — including living in the Middle East for four years and taking at least a dozen trips to Saudi Arabia while working at the U.S. State Department, White House, and Department of the Treasury — I have some thoughts on how business and politics work in that region. I’ve also spent almost two decades trying to understand the Big Four firms, and I recently sat down in Washington, D.C., with some of PwC’s leadership to discuss the market, the firm’s ecosystem and what’s coming in 2025.
 
Bottom line upfront: Understand that this is a Saudi story, not a PwC story, although undoubtedly it doesn’t feel that way in PwC’s corridors right now. Saudi Arabia has an opportunity to send some critical messages to players in the country, in the region and globally, and the kingdom is taking advantage. If you’re among the many IT services companies and consultancies — and other multinational companies, although they’re less of a concern to me professionally right now — investing aggressively on growth in the Middle East and you’re misinterpreting this recent development as what PwC did wrong instead of listening to what the Saudis are trying to say, take a long pause and step forward only cautiously.
 

What are the Saudis saying?

First, the Saudis, through the PIF, have issued a warning — a shot across the bow — to management consultancies, IT services companies and others that have been enjoying a seemingly relentless flow of funds from the kingdom: Tighten up your accounts, sharpen your delivery, ensure your value proposition and the Saudis’ return on their investment in you will be abundantly clear. The McKinsey & Co., Boston Consulting Group and Deloitte partners may be enjoying some schadenfreude at the moment, but they understand the message coming from the Saudis: Bring tangible value, or don’t send us a bill.
 
Second, the Saudis have been feeling the positive heat of the world’s economic attention for a few years now, particularly as new leadership has pushed hard to invigorate the non-oil part of the kingdom’s economy. I wrote recently about what that has looked like in the United Arab Emirates — based on a webcast by PwC, coincidently — and for the Saudis, the initial success of those efforts and the increased global market and investor attention have been welcomed. What better time to send a message that Saudi Arabia has a transparent, high-functioning, rules-based economy, long since evolved from the souks of the old days and the opaqueness that characterized so much of the kingdom as late as the mid-2000s?
 
The Saudi Arabia and PwC story serves that purpose perfectly: We’re holding accountable a Big Four accounting and consulting firm and subjecting them to our high standards, just like every other advanced economy. The particulars of the kingdom’s regulatory environment and business culture can certainly be up for discussion, but the message, again, is clear: Everyone needs to play by the Saudis’ rules.
 
And maybe that’s the biggest takeaway as this story develops. Operating in the Middle East requires local knowledge, a regional presence, and an on-the-ground understanding that can only be sustained by being there. Yes, I am writing this 6,303 miles from Riyadh, but lessons learned hard are lessons long remembered, even over long distances. TBR has seen a surge in IT services companies’ and management consultancies’ investments in the Middle East and heard expectations around growth in the near term.
 
In my view, those investments and expectations are smart strategies and well founded. It’s the execution that matters, and a significant — perhaps the most significant — part of that execution comes from knowing the ground, reading the messages being sent, and understanding the story behind the story.

SaaS Vendors Bet on AI Agents to Unlock New Revenue Streams  

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AI’s promise persists, but SaaS vendors await tangible revenue gains

While emerging technology AI and generative AI (GenAI) has been widely discussed, it has yet to translate into significant revenue growth for SaaS vendors. This is partly due to customers’ skepticism surrounding the technology and a persistent desire to limit IT spending. Despite this, vendors across all cloud segments have continued to invest heavily, through R&D and capital expenditures, showing a strong willingness to make substantial upfront investments for long-term gains. As a result, AI development strategies have progressed according to previously established road maps, a trend TBR expects to continue through 2025.
 
For SaaS vendors, the long-term opportunity lies in the ability to upsell GenAI solutions integrated directly into their existing workflows. While all major SaaS providers have made such solutions generally available, revenue from GenAI tools has not been enough to offset the slowing top-line growth many vendors are experiencing. Issues like cost, reliability, data governance and use-case validation remain obstacles to broader adoption, preventing the technology from becoming the growth driver vendors had hoped. Nevertheless, enterprise SaaS vendors continue to hold an optimistic long-term outlook, with many believing the technology will become a strategic necessary. This has prompted vendors to stay committed to their previously established AI road maps.
 

Learn how scale, innovation and even repatriation will moderate cloud market growth in 2025.
 
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SaaS vendors will shrug off growing GenAI disillusionment, focusing on the long term by prioritizing GenAI agents within their development strategies

In the latter half of 2024, cutting-edge GenAI tools evolved from copilots that could perform a single task based on natural language prompts to agents capable of handling multiple tasks, paving the way for greater automation. This was a logical progression and an important step in vendors’ efforts to automate workflows.
 

Click the image below to watch this recent TBR Insights Live session, Cloud Market 2025: How GenAI Will Shape the Future

 
Now that agents are available, expanding their capabilities has become the next priority, with vendors allocating more internal resources to develop prebuilt agents specialized in specific tasks. To complement internal development, codevelopment around GenAI agents will become a common initiative in SaaS leaders’ partnership strategies, as they look externally to fill domain expertise gaps.
 
Whether through internal development or ecosystem collaboration, TBR expects a proliferation of GenAI agents in the coming year. However, we remain skeptical about whether this will be enough to make GenAI a significant growth driver. Barriers to adoption, particularly the need for data modernization within enterprises, will likely persist as key challenges to broader GenAI adoption. Nevertheless, vendors will continue to push their development pipelines to stay ahead of competitors in the GenAI arms race.

Learn more

Download 2025 Predictions special report: Cloud Market Share in 2025: GenAI Spurs Growth but Does Not Promise Vendors Long-term Gains
 
Watch TBR Insights Live session on demand: Cloud Market 2025: How GenAI Will Shape the Future

 

Who Is the Market Leader in IT Services?

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IT services leaders navigate choppy macroeconomic waters as discretionary spending tightens

Increased managed services activities around cost optimization and streamlined business processes and the recovering BFSI segment will help vendors alleviate revenue growth pressures in 2025

Due to tightened discretionary spending, the top 10 IT services revenue leaders continued to experience decelerating or declining trailing 12-month (TTM) revenue growth year-to-year in U.S. dollars during 3Q24. Accenture’s revenue landed above the midpoint of the company’s guided range, as Accenture leveraged its scale and broad-based functional and technology expertise across service lines to drive sales around helping clients build and manage secure foundations. Accenture’s FY24 total revenue growth of only 1.2% year-to-year — compared to 4.1% in FY23 and 21.9% in FY22 — reflects the choppy macroeconomic environment Accenture has been navigating, particularly in Accenture Strategy & Consulting, as buyers continue to limit discretionary spending.
 
At the same time, managed services enabled through Accenture Technology and Accenture Operations remains a strategic priority for clients seeking to drive cost optimization and streamline business processes, evidenced by Managed Services growth of 4.6% year-to-year in 3Q24 and 3.9% year-to-year in FY24.
 

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Tata Consultancy Services (TCS), which currently ranks No. 2 in revenue in TBR’s IT Services Vendor Benchmark, has noted that clients remain cautious about spending, but the company’s solid internal execution has led to deal momentum across markets. Banking, financial services and insurance (BFSI), TCS’ largest revenue-contributing segment, is rebounding, which indicates a positive trajectory for the company heading into 2025.

IT services operating margins are stabilizing

Average TTM operating margin contracted for 4 of the top 10 category leaders

Operating margin performance is stabilizing in IT services, as just four of the top 10 margin leaders experienced year-to-year TTM operating margin contractions in 3Q24, compared to eight of the top 10 margin leaders experiencing margin contractions in 3Q23.
 
Infosys’ TTM operating margin declined 40 basis points year-to-year in 3Q24, landing within the guided range of between 20% and 22%. The use of generative AI (GenAI)-enabled sales automation tools, such as the Navi sales assistant, which accelerates time to insight, will help Infosys further improve utilization and decrease its reliance on sales support personnel. This will bolster the company’s margin, provided Infosys can withstand potential clients’ requests to lower pricing related to the use of automation.
 
TCS’ TTM operating margin improved 40 basis points year-to-year in 3Q24 as wage inflation appears to have leveled off and overall headcount remains stable. We expect TCS’ operating margin to remain in a similar range for the foreseeable future, as the company’s pricing flexibility, supported by its lower-cost resources, can help offset cost increases.
 
Wipro IT Services’ (ITS) TTM operating margin increased 10 basis points year-to-year in 3Q24 as the company benefits from operational improvements. While Wipro ITS faces pressures from furloughs and salary increases, it benefits from streamlined operations and a successful sales strategy to drive margin improvements. However, Wipro ITS’ margin performance might worsen as the company executes on training programs to build industry and technology capabilities in an effort to better work with clients, as well as expands its pool of AI experts, which currently consists of 44,000 employees.

IT services market outlook

Average revenue growth for benchmarked vendors will accelerate but also remain pressured due to macroeconomic challenges

TBR estimates IT services TTM revenue will increase slightly in 4Q24 compared to revenue growth of 0.1% in 3Q24 and a deceleration from revenue growth of 3.5% in 4Q23. Demand for greater productivity and lower costs continues to create digital transformation opportunities around finance and supply chain improvement, cloud modernization, and application development. Lingering pressures in discretionary spending negatively affected consulting activities and backlog realization in 3Q24, and this trend will continue in 4Q24. However, managed services activities are picking up speed as clients strive to optimize costs and streamline business processes.

TBR vendor spotlights

Accenture added $785 million in net-new revenue in FY24, the lowest amount since FY09 and FY10, following the financial crisis. We expect Accenture to improve performance and add over $3 billion in net-new sales in FY25. Maintaining a strong household name among IT buyers often comes at a price, with the company accelerating its acquisition activity to protect its turf. While Accenture has added new skills and IP that can help drive long-term organic revenue, the company’s acquisitions have also helped to buy short-term revenue growth as half of the projected expansion in FY25 will be due to inorganic contribution. Additionally, Accenture’s aggressive investment activity within the GenAI space has left partners and rivals wondering why Accenture is making so many acquisitions now when all vendors face similar challenges when it comes to securing the data quality needed to explore the full potential of the technology.
 
TCS’ core capabilities in integration, application and outsourcing services engagements sustain its healthy revenue growth levels. To reach the upper range of its revenue growth targets, TCS is strategically investing in GenAI capabilities. By initially focusing on lower-risk, high-volume applications like chatbots and virtual assistants, TCS is building a strong foundation of AI expertise. As GenAI matures in the market, the company aims to expand its offerings, positioning TCS to capitalize on the GenAI-related market opportunity and deliver enhanced value to clients. The company’s continued development of proprietary software and platforms aims to attract clients and support engagements as a foundational framework.

 

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3Q24 Federal IT Services Benchmark

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Expansion accelerated in the federal IT market in 3Q24 as renewed M&A activity by several federal IT vendors augmented strong, stable demand for digitally based IT modernization

Statutory year-to-year revenue growth for the 11 benchmarked vendors in the U.S. federal market on a weighted average basis rose 100 basis points sequentially, increasing from 8.3% in 2Q24 to 9.3% in 3Q24. Acquisitions by AFS (Cognosante), BAH (PAR Government Systems Corporation [PGSC]), CACI (Quadrint in 1Q24 and Azure Summit Technologies [AST] in 3Q24), CGI Federal (Aeyon), General Dynamics Technologies (Iron EagleX) and KBRWyle (LinQuest) generated an inorganic tailwind to overall market growth of roughly 180 basis points in 3Q24.
 
Federal IT executives (e.g., CACI CEO John Mengucci) have indicated that the M&A market became more buyer-friendly during 2024, prompting several benchmarked vendors to leverage acquisitions to address portfolio gaps in multiple areas, including digital transformation (DT) and emerging technologies for classified defense and intelligence operations. Vendors have been acquiring, and will continue to hunt for, smaller peers with scalable cloud and digital modernization capabilities as well as deep existing (and likely cloud-related) relationships with federal agencies.
 
Underpinning inorganic market growth is enduring robust demand for digitally transformative technologies in AI, cloud, analytics and data science, as well as the continued need to upgrade baseline IT infrastructures across the federal sector to accommodate digital modernization.
 

Graph: 3Q24 Federal Market Year-to-year Growth (Source: TBR)

3Q24 Federal Market Year-to-year Growth (Source: TBR)

Civil agencies continue to aggressively invest in cybersecurity, health IT and Agile-based software systems, leading to sustained double-digit civil sector IT spending growth

Weighted average growth in the civilian sector accelerated 80 basis points sequentially, rising from 9.6% in 2Q24 to 10.4% in 3Q24. Vendors including BAH and Leidos have posted multiple quarters of double-digit growth in their respective civil units as of 3Q24, with robust rates of growth expected to persist well into 2025. Sector growth was sustained at or near 10% throughout federal fiscal year 2024 (FFY24) as demand among civil agencies remains robust for comprehensive zero-trust and cyber incident support solutions, particularly by the U.S. Department of Homeland Security (DHS), the Department of Health and Human Services (HHS), the IRS and NASA.
 
Attracting and retaining cybersecurity talent also remain top priorities for nearly all civilian agencies, which are tapping vendors like AFS, BAH and Deloitte Federal for human resource advisory services. NASA launched an eight-year, $2 billion program, NASA Consolidated Applications and Platform Services (NCAPS), during 3Q24 to develop and deploy Agile-based software for over 200 IT systems, with vendors including CACI among the primary awardees.
 
Health IT is generating new revenue and profit streams for the benchmarked vendors, and agencies including the HHS (and its subagencies, CMS, the CDC and NIH) are seeking agencywide AI and analytics adoption services. The top five benchmarked vendors in year-to-year civilian sector revenue growth in 3Q24 were AFS (25%), BAH (16.1%), SAIC (10.8%), Maximus (9.3%) and CACI (7.9%).

Federal IT spending remained robust throughout FFY24, and the market appears poised for another strong year in FFY25, even as CY25 begins with yet another continuing resolution

TBR projects weighted average year-to-year federal IT services revenue growth for the 11 benchmarked companies will decelerate to between 8% and 8.5% in 4Q24, down from 9.3% in 3Q24. We anticipate weighted average year-to-year revenue growth in the defense sector will fall to between 6.8% and 7.3% in 4Q24, down from 8.6% in 3Q24, while civilian revenue growth remains between 10% and 10.5% in 4Q24, in line with the 10.4% increase in 3Q24.
 
Four leading federal systems integrators — BAH, CACI, Leidos and SAIC — as well as smaller federal IT peer KBRWyle elevated their respective revenue growth forecasts for their current fiscal year when tendering 3Q24 fiscal results, indicators that the federal IT macro environment will remain mostly growth-friendly through FFY25.
 
The new federal fiscal year began with a continuing resolution (CR) that extended government funding until Dec. 20, when a subsequent CR was enacted to fund federal operations until March 14, 2025. Further CR extensions in FFY25 would cause budget delays that could impede the ability of federal IT contractors to convert backlog into revenue, but most vendors expect revenue growth to remain on a solidly upward growth trajectory in FFY25.
 

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Pressures on resource management teams at federal IT contractors continue easing as the federal technology labor market returns to pre-pandemic rates of employee attrition and retention

Federal IT vendors are expanding training of their workforces across a variety of emerging technologies, including AI, analytics, cloud, EW, SIGINT and communications. The competition for talent in federal IT continues to cool, according to executives at several vendors, who have indicated that current trends in the labor market in federal technology are reminiscent of those seen in 2020. Recruiting and upskilling initiatives at federal IT vendors emphasize skills in AI/GenAI, machine learning and security technologies.

Spotlight on IT and professional services vendors serving the public sector: Resource management

Leidos CFO Chris Cage noted in the company’s 3Q24 earnings discussion that employee retention levels remain at all-time highs, as the federal IT labor market continues to cool after the hyper-competitive, post-pandemic period. BAH CFO Matt Calderone indicated his firm received over 100,000 applications in one month during 3Q24.
 
Amanda Christian, CACI SVP of Contracts and Subcontracts, is leading an effort to consolidate the company’s finance, accounting, contracts and subcontracts activities to enhance cross-collaboration and improve the company’s already strong win rates on net-new awards and recompetes.
 
Peraton continued to support Dakota State University’s CybHER Security Institute this summer to encourage young girls to pursue careers in cybersecurity. The company has recently ramped up its efforts to develop a cybersecurity talent pipeline. Peraton has promised to double its related apprenticeships, hire over 200 interns, set up an initiative to help people pivot into cybersecurity, and expand its ties with community colleges over the course of 2024.

 

2H24 Hyperconverged Platforms Customer Research

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Turmoil over VMware’s licensing changes for VCF could cause customers to shift to other hyperconverged platforms or even to move away from HCI altogether and toward public cloud

Artificial intelligence

Although AI has been part of HCI workloads for some time, industry hype has brought more attention to both AI-enabled workloads and AI running as its own workload. Respondents cited AI as the top workload being run on HCI, and indicated AI is enabling a number of other workloads, including database management, business intelligence/ analytics, business apps (CRM, ERP), data backup, disaster recovery and IoT.
 
When it comes to generative AI (GenAI), the majority of the respondents’ organizations had already implemented GenAI into some of their business workflows or are evaluating how to do this. Organizations face different adoption challenges depending on their size. For example, large enterprises look for solutions that ensure data privacy and accuracy of results, while smaller organizations consider cost, skill set needed to operate the solution and how data must be structured.

Hybrid cloud

Nearly 70% of respondents are utilizing HCI for hybrid cloud, and HCI vendors continue to roll out enhancements to their hybrid cloud offerings with partners such as Microsoft Azure, VMware, Nutanix and Red Hat. At the same time, complex integration with existing infrastructure was the top challenge respondents faced with HCI rollouts in 2024. Additionally, 26% of respondents indicated they have not yet realized the benefits of integrating their HCI into a hybrid cloud. As HCI systems are increasingly becoming the foundation for numerous hybrid cloud and edge computing solutions, vendors must be prepared to simplify and enable system deployment, becoming more complex due to integrations with other systems and platforms.

VMware

VMware’s licensing changes for VMware Cloud Foundation (VCF) and other software have created significant upheaval among customers, with over half of respondents surveyed indicating they are exploring alternatives. While this may create opportunities for competing HCI solutions, such as Azure Stack HCI or Nutanix Cloud Infrastructure, customers frustrated with licensing fees may also choose to shift HCI workloads to a public cloud alternative instead of to another on-premises solution.
 

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While the rate of on-premises data center consolidation has declined for 2 consecutive years, the rate of data center expansion has increased

Over the past two years, the percentage of respondents who are significantly consolidating their on-premises data center space has decreased from 53% in 2022 to 40% in 2024. At the same time, the percentage of respondents who are significantly increasing their on-premises data center footprints has grown from 4% in 2022 to 13% in 2024.
 
Overall, data center consolidation is still the prevailing trend, with 66% of respondents somewhat or significantly consolidating their on-premises data center space. However, respondents are trending toward more of a middle ground, which is likely driven by a combination of factors including hybrid cloud adoption, workload placement optimization, cloud repatriation and upgrading older data center infrastructure to denser systems.
 
Graph: On Premises Data Center Strategy, 2H24 (Source: TBR)

HCI customer respondents’ managed services uptake increased approximately 5% in 2024 compared to 2023

Hardware services such as break-fix and firmware update continue to be the most commonly attached services to purchases of hyperconverged platforms, while managed services ranks a close second.
 
Vendors continue to leverage “as a Service” offerings to drive increased services attach on hyperconverged platform sales. As customers increasingly opt in to managed services contracts, education and certification services attach has fallen.
 
Consumption of assessment planning and implementation services as well as advisory, strategy and consulting services remained largely flat on a year-to-year basis in 2024, demonstrating consistent demand for such offerings as customers continue to seek support in evaluating new use cases.
 

Graph: Additional Services Requested When Purchasing Hyperconverged Platforms, 2H24 (Source: TBR)

Additional Services Requested When Purchasing Hyperconverged Platforms, 2H24 (Source: TBR)

As organizations’ data volumes continue to increase, respondents expect to leverage HCI more heavily, taking advantage of the highly scalable nature of these platforms

Data backup and disaster recovery was the second most common workload respondents reported running on their hyperconverged infrastructure, and the top workload customers plan to move to hyperconverged platforms.
 
While DevOps was ranked No. 8 in overall workload adoption on HCI, respondents have identified it as a future growth area as the second most popular workload expected to be moved to hyperconverged platforms.

1H25 5G & 6G Telecom Market Landscape

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FWA will persist as the dominant 5G use case for operators for foreseeable future as ROI of emerging use cases for 5G SA and 5G-Advanced remains uncertain

Communication service providers (CSPs) in many countries (developed and developing) globally will leverage 5G fixed wireless access (FWA) to provide competitive high-speed broadband services. CSPs view 5G FWA as a viable and, in many cases, more cost-effective alternative to traditional fixed broadband services.
 
In many cases, FWA also provides CSPs with a time-to-market advantage versus traditional, fixed-access operators in greenfield environments such as rural areas. According to the November 2024 Ericsson Mobility Report, more than 130 CSPs globally are currently offering 5G FWA services.
 
The U.S. remains a market leader in FWA adoption as T-Mobile and Verizon recently updated their FWA customer targets to reach 12 million and up to 9 million customers, respectively, by the end of 2028. Additionally, TBR believes fiber-poor markets, such as Germany, the U.K. and India, are especially attractive candidates for 5G FWA as they provide a faster and more cost-effective way to deliver fiber-like services to end users compared to building out fiber to the premises (FTTP). TBR notes that deploying fiber everywhere is not economically feasible and that governments are becoming more aware that FWA is a viable alternative.
 
Despite its potential to generate revenue and customer growth, TBR believes FWA is largely viewed as an ancillary offering in the mobile industry and is lacking a level of attention and innovation in the market. Additionally, existing standards do not adequately account for FWA, and network architectures are not optimized to fully support this use case. Spectral efficiency technologies tailored to optimize FWA traffic could free up significant capacity on existing networks, which could then be utilized for other purposes.

Lack of a clear ROI for the private sector to justify investing sufficiently in 6G puts the fate of the technology into the hands of the government

The telecom industry continues to struggle with realizing new revenue and deriving ROI from 5G, even after five years of market development. TBR does not see a solution to this challenge, and with no catalyst on the horizon to change the situation, CSPs’ appetite for and scope of investment in 6G will likely be limited. TBR expects CSP capex investment in 6G will be subdued compared to previous cellular network generations and deployment of the technology will be more tactical in nature, which would be a marked deviation from the multihundred-billion-dollar investments in spectrum and infrastructure associated with the nationwide deployments during each of the prior cellular eras.
 
In a longer-term effort to address this situation, TBR expects the level of government involvement in the cellular networks domain (via stimulus, R&D support, purchases of 6G solutions and other market-influencing mechanisms) to significantly increase and broaden, as 6G has been short-listed as a technology of national strategic importance.
 
With that said, 6G will ultimately happen, and commercial deployment of 6G-branded networks will likely begin in the late 2020s (following the ratification of 3GPP Release 21 standards, which is tentatively slated to be complete in 2028). However, it remains to be seen whether 6G will be a brand only or a legitimate set of truly differentiated features and capabilities that bring broad and significant value to CSPs and the global economy. Either way, the scope of CSPs’ challenges is growing, and governments will need to get involved in a much bigger way to ensure their countries continue to innovate and adopt technologies deemed strategically important.
 

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Global CSP spend on 5G infrastructure is slowly growing following a dip in 2024 as CSPs reassess their capital allocation and become more conservative

A pull forward of capex into 2023 in the U.S. and India resulted in a decline in CSP 5G capex in 2024, but slow growth will resume in 2025 as CSPs gradually deploy additional 5G base stations for coverage and capacity as well as roll out 5G core.
 
Though some CSPs will continue to test and commercially deploy the newest technologies for 5G, most CSPs are in no rush to deploy 5G Stand-alone or 5G-Advanced due to the lack of ROI-positive B2B use cases.
 
FWA is one key area that will receive increased attention and investment through the forecast period as more CSPs legitimize the technology as an economically viable means of bridging the digital divide and bringing more competitive broadband services to existing markets that have fixed access.
 

Graph: 2023-2028Est. 5G CSP Capex Spend (Source: TBR)

2023-2028Est. 5G CSP Capex Spend (Source: TBR)


 

CSP investment in 5G infrastructure and technologies is being limited by ROI uncertainties

Phase 3: Ecosystem maturity (2025-2030)

  • Most CSPs will have at least begun commercial deployments of 5G SA.
  • Global operators implement 5G-Advanced, which is dependent on a 5G SA core, to realize benefits in areas including network performance, sustainability and enhanced AI/machine learning (ML) capabilities.
  • Network slicing will mature and become commercialized, likely creating new 5G B2B revenue opportunities for operators.

Enterprise 5G use cases in areas including private cellular network and multi-access edge computing will gain greater traction but account for a relatively limited portion of overall CSP revenue. FWA will remain the most predominant 5G revenue-generating use case, likely contributing tens of billions of dollars in net-new revenue annually for CSPs globally.
 
The first 6G specification in 3GPP Release 21 is expected to be finalized in 2028. Initial commercial 6G network deployments are expected by 2030.

TBR assessment

CSPs are becoming more conservative about investing further in their 5G networks until they see a clear path to ROI. LTE remains sufficient for most customers, and the technology is likely to persist in the market for an extended period. This CSP approach is drawing out the migration to the new RAN architecture (e.g., open vRAN) and to 5G SA, which uses a 5G core. 5G-Advanced will lead to a slight increase in capex but will not reach anywhere near the peak levels experienced in prior years.

Scope of government support for the telecom industry will increase and persist to facilitate 6G market development

The persistent lack of ROI to justify private sector investment in 6G (and cellular networks more broadly) will ultimately push governments further into the telecom industry, prompting them to increase the scope of their involvement in the wireless technology ecosystem as well as embed these support structures more deeply in the market.
 
During the first half of the 5G cycle, governments from various countries around the world pumped many hundreds of billions of dollars in aggregate into their respective domestic technology sectors via various stimulus programs, which provide direct or indirect capital, low- or zero-interest rate loans, as well as subsidies and other means of market support. Governments have also been fostering and overseeing various consortiums and other initiatives to promote 6G market development.
 
Still, additional government backing will be required to enable the full benefits of 6G to come to fruition. Governments have a vested interest in supporting the telecom industry and the broader technology sector as the telecom industry provides innovations of societal and national security importance and serves as foundational infrastructure to support long-term economic development.