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Economic headwinds to wipe 3.4% from telecom revenues

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Large increases in unemployment, business closures, an overall decrease in global economic activity and a resulting decline in business services revenue could wipe 3.4% from telecom revenues in 2020, with operators in developed economies facing US$40 billion this year and next in “lost” revenue.

The figures, calculated by Analysys Mason, continued to predict that operator capex is likely to fall over the year, due to supply chain disruption and constraints in the ability to build.

However, overall EBITDA margins for the sector are unlikely to decline more than two percentage points. Analysys Mason said operators “should be able to limit the impact” on profitability and that the pandemic will “reinforce and accelerate existing downward OPEX trends, rather than introduce new ones”.

“Consumer telecoms services, which account for the majority (68%) of telecoms revenue, tend to be relatively resilient during economic downturns,” said Stephen Sale, research director and co-author of the report, “but large increases in unemployment, business closures and the overall decrease in economic activity will cause a sharp decline in business services revenue.”

In India, for example, these issues have been compounded by customers being unable to top up their PAYG mobile services: lockdown measures prevent them from going to a shop and many people do not have the connection or banking facilities to top up online.

As Capacity reported on 10 April, India’s three largest mobile operators could see US$1.97 million wiped off their combined 2020 revenues as a result.

Reliance Jio (NSE: RELIANCE), Vodafone Idea (NSE: IDEA) and Bharti Airtel (NSE: BHARTIARTL) are likely to be worst hit, as more than 90% of customers in India with pre-paid accounts comply with Covid-19 restrictions.

On a more positive note, telecoms as an industry should stay healthier than most others in the crisis, accounting for 2% of global GDP in 2020, up from 1.9% in 2019

The impact assessment aggregated results from 32 developed economies across Asia, Europe and North America. It is based on an assumed fall in GDP for these countries of 6% in 2020 followed by an increase of 4.6% in 2021.

The report noted the sector should also show some of the strongest post-crisis investment, in part because “telecoms has more resilient cashflow than most sectors, and because some governments will emphasise 5G and fibre in stimulus packages”.

“Telecoms should stay healthier than almost any industry in this crisis,” said Rupert Wood, research director and also co-author of the report.

“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,” he added.