- Aging equipment and increased demand for broadband and data center interconnect are driving new demand from telcos, says Guru Shenoy, Cisco data center and provider connectivity honcho
- Hyperscalers are driving demand for fiber to support data center interconnectivity and AI workloads
- Operators' network edge presence is a future opportunity, according to Shenoy
Service provider spending is showing strong signs of picking up after a slow few years, driven by the need to refresh equipment, to serve broadband penetration and demand for data center interconnectivity, said Guru Shenoy, Cisco SVP, data center and provider connectivity.
"We're certainly seeing the service provider market recovering nicely," Shenoy told Fierce Network. The company is seeing a global increase in requests for proposals, quotations and information (RFPs, RFQs and RFIs).
That optimism is reflected in Cisco earnings. Cisco doesn't report service provider orders separately; it lumps them in with cloud customers, but it did say orders from telcos grew more than 25% year-over-year for the first fiscal quarter of 2026, according to prepared remarks in its earnings call Nov. 12.
The company said overall orders for its cloud and service-provider sector combined were up 45% year-over-year, driven by double-digit order growth in hyperscalers. That's on top of triple-digit growth from hyperscalers in the year-ago quarter.
"Basic network refresh needs" are one driver for improved demand, Shenoy said. For many service providers, their last big infrastructure investments were preparing for 5G six to eight years ago. "They're looking to refresh their networks to the latest technology because they're running into lifecycle issues," Shenoy said.
Edge, core, AI investments
Service providers are investing in the edge and core to meet increased broadband demand, Shenoy said.
And AI and the cloud are driving demand for data center interconnect. Hyperscalers and neoclouds are investing in data center infrastructure and turning to service providers for fiber to provide data center interconnectivity, Shenoy said.
Another factor: Some service providers are preparing for the upcoming wave of traffic driven by AI, Shenoy said.
Cisco may be a lone voice singing its happy tune. A recent report from Dell'Oro Group was less sunny, finding that telecom capex was stable in the second quarter 2025 year-over-year, following two years of reductions. Dell'Oro said 1H25 capex was down year-over-year, despite the 2Q improvements. “Capex is past the peak, but it is not falling off a cliff,” Stefan Pongratz, Vice President of RAN and Telecom Capex research at Dell’Oro Group, said in a statement. Operators are "reallocating away from blanket coverage builds and toward capacity, quality, automation and energy performance."
Ceragon Networks says carriers are shifting priorities from expanding to optimizing networks; that was the subject of a recent Fierce Network Research webinar, sponsored by Ceragon and featuring Ryan Hollinger, T-Mobile senior director, systems architecture. You can watch that here: Discovering the Hidden Value in 5G Networks.
Service providers aren't just spending money – they're looking to better monetize infrastructure, Shenoy said. One opportunity is by implementing network APIs to allow enterprises and other customers of service providers to tailor network resources to their own needs. For example, U.K. service provider Colt Technology Services is offering network APIs to allow enterprise customers to configure low-latency and green paths – the latter for sustainability, to configure network paths with reduced carbon footprints.
And service providers are looking to become bigger players in the AI ecosystem. As production of AI, or training, moves to consumption, or inference, the business and technology advantage moves from a small set of big players to companies with networking presence at the edge, where service providers are strong, with investments in power, space and facilities. "We have service provider customers talking to us about leveraging their facilities to host inferencing infrastructure — inferencing as a service," Shenoy said.
"Service providers are in a perfect spot to bring AI to the masses."
Cisco is working to meet that demand by providing blueprints for secure AI factories. These data centers optimized to run AI workloads can provide AI infrastructure similar to neoclouds.