Since the COVID-19 pandemic was first identified, it has had a severe impact on both our personal lives and the global economy. Even the way a large portion of the US works has changed significantly. Most people are now working from home, and many people have been laid off. In the two months since coronavirus has hit the US, over 36 million people have filed for unemployment (Live Mint). Many organizations are planning to make their employees’ transition to remote working seamless. As the world revisits the way they work, telecos have been at the forefront of the discussion about network resilience and our transition to working from home.
Though many countries are lifting their lockdowns, most people are still hesitant to leave their homes. As a result of being at home always, people are consuming more data. Therefore, the biggest concern of telecom service providers is maintaining their networks and meeting the surging traffic volumes. Due to this unprecedented situation, many mobile operators have offered free data to their users. These operators are also benefitting from additional spectrum resources to manage increased traffic volumes. China was the first country to be hit by the Coronavirus, but it was also the first company to initiate strict lockdowns and recover from the impact of the virus on its people’s health. The first-quarter results from China showed a drop in service revenue growth, but by March, the new subscriber numbers started to grow. Even after the impact of COVID-19, the financial forecasts for the rest of the year remain mostly unchanged. This growth can be attributed to the increasing demand for 5G and is driven by the adoption of this new technology.
Covid impact on the US telecom industry
The ‘new normal’ for US citizens is to spend a considerable amount of time on the internet in order to fence the spread of the virus. Due to this, US telecom operators are notching new traffic records daily. The increase in traffic could have significant implications on the telecom companies, including monetary implications. The pandemic has been successful in shifting the perception of network connectivity in people’s minds from ‘nice-to-have’ to ‘must-have’ category. “Before the crisis, the importance of broadband wasn’t clear but now, it is crystal clear that modern home and commercial life can’t function without proper network connection”, Jessica Rosenworcel, FCC Commissioner. Internet has officially become a ‘utility’ now. Currently, most of the traffic growth is observed during the day over wired connections and the networks are designed to smoothly handle such peaks. Many US operators are increasing their capacity by borrowing spectrum from competitors.
Since mid-March, Windstream, a broadband provider in US, recorded a 50% increase in voice traffic and 30% increase in data traffic. The company said in a statement that these jumps in traffic lie within the network’s operational tolerance. AT&T notched a 26% increase in traffic in its core network which includes home broadband, business and wireless connections, during mid-April as compared to a February end (FierceTelecom). During the same time period, AT&T’s home voice calling minutes increased by 43% on a Saturday as compared to 35% on a Friday.
A survey by MKM partners reveals that 19% of the respondents plan to increase their spending on their network connections, while 3% of them said they’ll spend less. The long-term implications of the Coronavirus pandemic on the telecom sector will be largely around the question \ – if it will lead the industry to implement broad changes according to the customer behaviour and regulations. For instance, the American schools and colleges are ordered to shift their operations online within a span a few weeks. Will that order by the US policy makers put the network operators in the same basket?
According to the New Street analysts, there is a paradigm shift in the way individuals are utilizing internet for work, study and entertainment, in order to replace the physical and social interactions. The telecom companies may give re-pricing a consideration. As stated by Wall Street analysts at Nomura’s Instinet, while on one hand the data traffic has shot up for most of the players, on the other hand the mobile operators have had a significant impact on their revenue, considering the closure of retail stores across the United States.
What are the Challenges That the Telecom Industry Will Face Due to the Coronavirus Crisis?
We have already heard about the long-term implications of the COVID-19 virus outbreak, such as the complete disruption of the global supply chain and a possible global recession. Let us try to understand the impact of the coronavirus in the short-term, particularly on the telecom industry.
- Regulation – Due to the ongoing crisis, the need for connectivity has become evident. The solution to this could be to amend existing regulations, which could encourage more people to make investments. But if regulations in one region are changed to facilitate flexible models that maximize speed and coverage, regulators in other regions will have to address excessive sector-specific taxes and high spectrum changes. This could limit further investments in the industry.
- Inflation – Governments in several countries around the world have been offering enormous fiscal packages and monetary stimuli to mitigate the pandemic’s economic impact. However, injecting large sums of money into the economy could lead to a sustained pick up of inflation rates. This could allow operators to benefit from the pricing power up to a certain degree. But Consumer Price Index (CPI) linked price increases could see more widespread adoption in a market that has undergone inflation. As a result, operators will lose their newly gained benefit.
- Usage and Revenue – Given the current situation, it is highly likely that we will see a sustained uplift due to the increased usage of digital services. Usage in both work and home settings will increase as more telecom operators offer appealing data plans. Therefore, the average revenue per user will increase. However, this effect could be reversed due to rising unemployment and many companies being closed.
- Investment Levels – The practical challenges caused due to COVID-19, such as collapsing supply chains and reduced discretionary spending, could result in a decline in plans of investing in the telecom industry. However, these effects will be temporary, and operators will be able to drive more investments by focusing on connectivity and efficiency.
Changing consumer perception: Consumers have always exhibited certain reservations regarding the telecom industry due to billing inconsistencies, coverage issues, and perceived poor customer service. The bright side of this pandemic is that it might change the consumer outlook about telecom companies.
Telecom companies revamp their services: As connectivity becomes central to our lives during this lockdown, the measures taken by companies to improve connectivity and speed will also improve consumer attitudes.
New opportunities for the telecom industry: The world is currently in the stage of emerging from the lockdowns, there has been a shift in the model of globalization, and there have been drastic changes in the way we work. This could lead to exciting new opportunities for the telecom industry.
Future looks bright: As device availability and network coverage improve, we could be looking at the most significant opportunity for telecom, the advent of 5G. Though the current situation looks bleak, the future of the telecom industry looks bright.
The telecom industry has faced a significant impact owing to the Coronavirus pandemic. The increasing number of restrictions on movement have led to people use higher amounts of data. The telecom companies are focusing on increasing network resiliency and analysing the impact Covid-19 might have on investments as well as 5G. Since, the networking services are now a part of the “essentials”, Telcos are reformulating their services for customers’ benefit.
Companies are undertaking variety of measures to improve customer experience and ensure the internet accessibility to the masses. The next steps that telecom companies must undertake is to first, ensure network reliability as almost everything people are doing these days is directly dependent upon the quality of network. Secondly, their customer service executives must be prompt in action in order to handle the increasing volume of customers. Moreover, companies can explore automation opportunities in order to increase efficiency of low customer facing activities and internal tasks.
Devi Prasad Swain