Telcos in developed markets to lose more than $40bn
Research from Analysys Mason forecasts that the Covid-19 pandemic will lead to a decline in telecoms revenue of 3.4% in 2020, with an overall impact for operators in developed economies in “lost” revenue amounting to more than $40bn in both 2020 and 2021.
The report explored and quantified the impact of Covid-19 on different categories of revenue – consumer mobile, consumer fixed, digital services, pay TV/video, business mobile, business fixed, ICT, IoT, wholesale – and capex and opex spend, also by category.
Analysys Mason made the assumption that the most badly affected quarter in terms of economic output will turn out to be the second quarter of 2020, when it expects a fall of 11% (37% on an annualised basis). Inputs for the figures for Q1, Q2 and Q3 2020 were broadly based on a range of third-party GDP forecasts published on or after 23 March 2020.
In this scenario, it assumes that output in markets will start to rise in the third quarter of the year and will have returned to where it was in Q4 2019 by the end of 2021, having fallen 6.1% for the whole of 2020 and rising 4.6% for the whole of 2021.
That, said the analyst, represents in effect two “wasted” years. It also assumes that economic inactivity through unemployment and furloughed workers will rise to 25% in Q2 2020, falling to 15.5% by the end of 2020, then picking up through 2021 to reach similar levels to Q4 2019. After the expected 3.4% decline in overall revenue for 2020, against a previous forecast of an increase of 0.7%, Analysys Mason sees a modest rebound of 1% in 2021.
The analyst noted that consumer services, which account for 68% of telecoms revenue, have a demonstrable level of resilience during economic downturns. The restrictions of movement in place in many countries and the emphasis on home working and entertainment means that fixed services perform relatively well.
Yet it believes that business telecoms will be badly hit as increased unemployment, business closures and an overall decline in activity mean that business services telecoms spend will fall sharply.
On a brighter note, the analyst was confident that operators would be able to limit the impact on profitability. It calculated that operator capex is likely to fall in 2020 because of constraints in the ability to build and because of disruption to the supply chain, and that the pandemic will reinforce and accelerate existing downward opex trends rather than introduce new ones.
Yet while profits will more than likely fall, Analysys Mason did not expect overall EBITDA margins for the sector to decline by more than two percentage points.
Also, the report says telecoms is a relatively resilient sector and suggests that, going forward, it will perform ahead of general GDP trends. Analysys Mason expects telecoms to account for 2% of GDP in 2020, an increase from 1.9% in 2019. Consumer services are likely to show the greatest resilience during economic downturns.
“Telecoms should stay healthier than almost any industry in this crisis,” said Rupert Wood, research director and 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.”