The past few weeks have seen every conceivable element of everyday life disrupted by the coronavirus and the measures enacted to contain its spread. The challenges to public health, the economy, and to society have been unprecedented.
Schools, shops and offices have shut down, with thousands of jobs lost or furloughed. Friends and family are unable to visit each other, while the home has become the centre of education, entertainment and work.
The situation has elevated the role of communications infrastructure significantly. Mobile and broadband networks have been essential for communicating with colleagues and loved ones, accessing business applications or education resources, and for entertainment purposes that lessen the constraints of restricted movement.
There had been fears that these networks would struggle under the weight of additional data traffic but any predicted meltdown has failed to materialise. Most networks have been built to withstand peak demands, while major streaming services have reduced transmission quality at the request of the EU. The signs are that the dramatic growth on traffic has now plateaued.
Connectivity has never been as important to the functioning of society, so it comes as a surprise that mobile operators and internet service providers (ISPs) are not reaping the benefits on their balance sheets or the stock market. Part of the reason is that communications providers have high fixed costs and must continue to invest in infrastructure without a way of monetising this explosion in demand – at least not immediately. A decline in share prices reflects that.
A report from Analysys Mason suggests that telecoms revenue in developed markets will fall by 3.4 per cent this year, a reversal from the firm’s original growth forecast of 0.7 per cent prior to the crisis. Analysts anticipate there will be a return to growth of 0.8 per cent in 2021, but this will still be down on 2019 levels. Overall, the economic impact will be more than $40 billion in both 2020 and 2021.
The chief reason for this downturn is the slowing economy. The estimates are based on an assumption that global GDP will fall by 6 percent in 2020, a figure which has inevitable repercussions for business spend on communications services. Increased demand for remote working connectivity will not offset the impact of business closures, higher unemployment levels, and temporary office and retail shutdowns. Mobile operators will be disproportionately affected by reduced business travel, with revenues expected to fall by 12 per cent in 2020.
The good news is that the consumer market, which accounts for 68 per cent of all telecoms income is fairly resilient. Both broadband and mobile will be viewed as essential for work and home entertainment and it is unlikely that economic pressure will see consumers dispense with these vital services.
5G and roaming
The mobile sector has traditionally been solid during past economic downturns, but the key difference on this occasion is that the population’s mobility is restricted by government guidelines. People are using mobile networks less because they are confined to their homes and using their home Wi-Fi networks. Mobile data might be increasing in some countries but will account for a lower proportion of all data traffic as customers use their fixed connection as their primary source of connectivity.
A more medium-term threat is that operators find it difficult to sell larger data allowances when there is no need for the,. A slowdown in smartphone sales will also make it difficult to shift 5G data plans, viewed as a key source of growth for the industry. Just 61.8 million devices were shifted in February 2020, down from 99.2 million last year. This 38 per cent decline is the biggest fall off in smartphone market history.
Although the market will recover through delayed purchases and as supply chain disruption eases, a global recession might encourage consumers to opt for cheaper devices or decided against an upgrade that would also renew their contract. On top of all this, travel restrictions will see mobile operators lose as much as $25 billion lost roaming revenue according to Juniper Research.
The rollout of and 5G could also suffer from restrictions on movement and supply chain issues. It may be more of a challenge to obtain equipment and to send out engineers, while a number of European countries have delayed the auction of 5G spectrum. Ericsson has already told investors that it fears coronavirus could delay the pace of rollout.
Resilient sector
The above evidence might paint a picture of doom and gloom but the reality is that the communications industry is fairly resilient and will rebound quickly once the crisis is over. Telcos are in a strong cashflow position to weather the storm and will benefit from delayed purchases and increased spend. This in turn will see additional investments in infrastructure, with both the private and public sectors eyeing opportunities.
“Telecoms should stay healthier than almost any industry in this crisis,” said Rupert Wood, resrarch director and Analysys Mason. “Telecoms should show some of the strongest post-crisis investment, in part because cashflow is more resilient in the telecoms sector than it is most others, and because some governments will emphasise 5G and fibre in stimulus packages.”
There may also be indirect benefits from an enhanced reputation. Operators have offered additional data allowances, offered free access to education and health resources, and pledged not to leave anyone disconnected. Coupled with the relative reliability of broadband and mobile services, and their ability to absorb additional demand, will inspire confidence among a public eager to complain about outages and poor customer service.
Long-term gains
Changing user behaviours could be an unexpected boost. O2 is reporting a 25 per cent increase in the volume of phone calls and a 30 per cent increase in duration – bucking the trend of declining traditional revenues.
Whereas making calls on the move was once considered the raison d'être of the mobile phone when it first arrived in the 1980s, priorities of mobile users have shifted significantly since the first iPhone and first Android devices launched a decade ago.
The popularity of over the top (OTT) applications like Facebook Messenger and WhatsApp, coupled with the preference of younger demographics to use instant messaging, has led to a recent downward trend in terms of voice traffic.
O2 has said younger demographics are making more calls than before and are now less anxious about speaking on the phone. Whether this translates to a long-term revival of voice remains to be seen. Consumers might return to their old ways when they can see their friends once again, or they might decide to opt for Zoom or another application.
Perhaps more promising is the greater technical literacy among older generations. A quarter of over-55s say they are considering buying a new or their first smartphone due to the pandemic, such is the desire to keep in contact.
A good proportion of the revenue lost during the coronavirus crisis may be gone forever, never to find its way into the coffers of operators. Falling revenues are hardly ever a good thing but there is no need for the sector to be alarmed. As the past few weeks have shown, connectivity is king.
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April 26, 2020 at 02:23PM
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Coronavirus crisis will see short term pain but long term gain for mobile operators - TechRadar
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