The financial toll of Covid-19 on telecoms
As the world continues to cope with the effects of Covid-19, the telecoms and tech sector has undoubtedly come to the forefront as the golden child of the global economy.
Remote working, increased video streaming and global internet communications have quickly become the lifeblood of modern society, and many analysts believe once we’re through the worse of this virus, our industry will be one of the few still standing and, in many aspects, stronger than before.
But it’s not plain sailing for all businesses in the market: strain on infrastructure networks, the impact to supply chain and staffing, and the all-around financial impact of the Coronavirus are all taking its toll in the short-term.
According to international law firm Baker McKenzie, the crisis has fostered corporate introspection and the need for businesses to re-evaluate near-term and long-term supply chains, resource deployment and liquidity in the in face of what it calls “a looming global recession”.
In its report entitled, COVID-19: A guide for the TMT sector, there is a renewed focus on liquidity, tightening of borrowing terms and increased conservatism in the venture capital ecosystem. In other words, businesses are tightening their belts and being careful with their spending, just like the rest of us.
However, the firm says that attitudes haven’t completely cooled, with strategic acquisitions to support mission-critical services, set to increase in the future.
“While transactional activity in the TMT sector may currently be muted, there will be interest in strategic assets which solve critical business issues such as supply chain management, enabling remote working and digital transacting with customers,” said William Holder, partner at Baker McKenzie – London.
“Investments in core data infrastructure and telecoms are increasingly attractive to investors and start-ups could be looking to a broader group of financial investors for next phase development.”
Explaining the impact Covid-19 is having consumer revenues, Angus Ward, CEO of BearingPoint//Beyond, said: “The uncertainty it’s created has slowed CSPs’ investment plans and also threatens spending by consumers and business customers.
“Cash-strapped enterprises and SMBs are likely to be much less forgiving and tolerant of service faults and less-than-perfect user experience from their provider. They’ll no longer put up with spending money with CSPs and service providers but not getting the results or service quality that they expect.”
Interestingly, Ward says that with less money in the market, the competition between CSPs will also intensify as all of them will be looking for ways to speed up time to market.
The first real casualty of the Corona-related cash flow problem was OneWeb. The London-based satellite company filed for bankruptcy last month in the US citing the Coronavirus as the cause.
“Our current situation is a consequence of the economic impact of the Covid-19 crisis,” said Adrian Steckel, CEO of OneWeb.
The pandemic has caused turbulence in the financial market and prevents it from securing funding for its commercial launch, this includes from its largest investor SoftBank.
Capacity spoke to international research and analyst firm IDC, for their insights on the significance the Coronavirus will have the industry’s financial performance.
“We are a projecting a dip in spending this year, largely due to reduced spending in the second and third quarters. Overall, we are projecting a decline of 0.6% in telecom spend in the US this year,” said Courtney Munroe, research vice president, worldwide telecommunications research, IDC.
“Most of the impact will occur in the fixed data/voice sector: a small decline in 2020 primarily from the impact of the SMB segment during the second half of 2020. This is due to economic impact of failed businesses who may not survive, larger business sites shutting down temporarily and furloughing employees, and the transition to IP and cloud services with lower ARPU as well as evaporation of GDP growth in the second half of 2020.
“Cloud services will grow, boosted by higher usage of content, gaming downloads, video conferencing, and the impact of WAH access to corporate networks. Mobile voice revenues continue to decline. Mobile data will see a dip in revenues but will rebound later in the year.”
With the exception of a few that have already been directly affected, the general feeling amongst most telcos is that the consequences of this virus won’t truly be felt until the next round of financial results, when some uncertainties are a little clearer and the immediate emergencies have been handled.
However, a few predictions have been made. Scott Sumner, director of commercial insight at EXFO, a test, monitoring and analytics specialist, pointed to “a deferral in new enterprise service investment as businesses start to prioritise what is essential”.
While James Nolan, executive vice president of products at InterDigital, believes it will trigger a “change in subscriber consumption patterns the longer that subscribers work remotely”, which in turn could be an accelerator for 5G infrastructure as operators may not have enough spectrum to meet this demand.
Paul Miller, vice president of telecommunications, Wind River, thinks the growth in lean teams will mean “companies will increasingly turn to digital tools and resources to address the need for more.”
Global Data’s Emma Mohr-McClune, technology service director, thinks the crisis will act as “a shot in the arm for telco innovation around AI and machine learning and a catalyst for app and solution innovation ecosystems.”
Whatever the forecast, we’ve been in a similar boat before. The 2008 global recession brought about many of the same economic conditions albeit without the same impact on human life.
Global telecoms and research firm Analysys Mason in its report, COVID-19: impact of the 2008 financial crisis on operator business services, found a number of trends in common with the crisis of 2008.
It noted that by 2009 the following global telcos had experienced a number of changes to revenues:
BT Global Services saw its revenue from businesses grew between 2005 and 2008 but suffered a long-term decline after 2008. The revenue from ICT and managed network services increased in both 2009 and 2010, but at a slower rate than in the previous three years.
Orange saw revenue from enterprises become stable between 2005 and 2008 but began to fall steadily after 2008.
The rate of decline of business services revenue for AT&T and Verizon increased significantly after 2008. Both business services divisions served mainly large enterprises.
However other operators, including those that are smaller in scale and in different regions weren’t affected.
Telstra for example derives the majority of its business services revenue from Australian businesses and public sector organisations. Australia was one of the few high-income countries that did not go into recession after 2008, and businesses there do not appear to have changed their rates of spending with Telstra.
Also, Colt reported that its revenue fell gradually during 2005–2012, mainly due to declines in corporate voice revenue. This does not appear to have been significantly affected by the financial crisis, despite Colt’s strong presence in financial services markets.
And MTS/Allstream, a Canadian B2B service provider and part of Zayo Group, had stable revenue during 2006–2010.
Though still too early to predict, it’s fair to say adopting a one-size-fits all approach to the effects of this crisis would be remiss.
While most of the biggest global telcos continue to focus efforts on supporting the cause, their customers and employees, the early signs have already started to show.
Bell Canada last month amid its $1 billion MTN Debentures offering, said that although it is unable to determine the impact of the Covid-19 situation on its operations or financial results, “the impact could be material”.