Telecoms and the virus - an update

There is now some early evidence and thinking about what Covid19 might mean for telecoms - much in line with my original post of last week (glad I got that about right!).

Happily, unlike the travel and hospitality industry, this is not existential for telecoms. Almost whatever happens we will all continue to pay our monthly subscriptions to mobile and fixed networks. Indeed, these networks are more important in a world of reduced travel.

A few caveats.

·        Roaming revenue will fall. Roaming accounts for about 6% of mobile operator revenue, although this varies hugely by operator and country. Much of this will disappear for quite some time. With operators already on slim margins this may be significant.

·        For those consolidated operators with content (eg AT&T), then the value of sports content will fall in the short term, and some of the subscribers who stop their sports package may not return.

·        Business revenue may also fall. Some businesses will collapse and no longer need a telecoms package. Some may decide they do not need telecoms for their offices, or discover that consumer packages coupled with OTT tools such as Zoom are just fine and so the premium for a business package is not warranted.

·        Where operators rely on advertising (typically within content) then this will fall.

·        Operators reliant on institutional funding may see that restricted or withdrawn - as we have seen with OneWeb (albeit they were a satellite operator, not a fixed or mobile operator). Other start-ups may struggle.

·        Operators are temporarily shutting their physical shops. They may find they do not really need them, providing some longer-term savings.

With most of us spending more time at home and less time travelling then we can deduce that:

·        Traffic on mobile networks will fall. When in the home most (but not all) will use Wi-Fi. Traffic in the most congested cells, in city centres, will be especially lowered. Traffic will be somewhat higher in suburban areas and this may stress the mobile networks in these areas as there is less capacity here. But if they get too congested, most users will switch across to Wi-Fi, limiting the impact. For example, BT are reporting mobile traffic down 5% in total across their network, but OpenSignal are reporting lower mobile data rates in Italy - the network is carrying less traffic in total but more in suburban areas where congestion is slowing data speeds, albeit not critically as they still remain above about 20MBits/s.

·        Traffic on home networks will rise - often by 50-100%. This means more data across the home broadband and through the local exchange. Most home working is not particularly data intensive but there is a lot more watching of on-line video for recreation. Mostly this has extended the evening peak previously seen on fixed networks throughout the day. This is not problematic to fixed networks, most of which are coping just fine.

·        5G will be of reduced interest. Since it is mostly available in cities, and since we are less likely to travel there, then the chances of 5G being available to us is reduced. Further Apple appear to be delaying the iPhone12 which would have been the first 5G iPhone. Even less reason to get interested about 5G. And the specifications that allow standalone (SA) operation, enabling many of the touted 5G features are also delayed, meaning 5G SA is unlikely before 2022 - so why invest in 5G base stations now? We may need to re-launch 5G in two years’ time.

·        Fixed wireless access (using cellular to deliver home broadband eg using 5G as offered by 3) will be stress tested. Home users will increase loading, potentially driving cells into congestion. But there is very little FWA at present.

·        Obviously, those offering collaborative applications, like Zoom, will do very well, both in the short term once they’ve managed to secure enough server capacity and possibly in the longer term if we decide that actually we can spend less time in the office in the future. Also likely to benefit are those making Wi-Fi “whole home” extender solutions as some decide it is time to sort out that dodgy Wi-Fi coverage.

Broadly, networks in developed countries should not be unduly stressed by the changes resulting from Covid-19. There may be contention at the local exchange, or into widely used servers (eg BBC, Netflix) which may slow things down somewhat but that might just mean we have to watch in HD rather than UHD. The voluntary downgrade of video resolution from Netflix and others is not really needed, and may be as much about the video server capabilities as worries about the network. Equally, it does no harm, most will not notice the reduction in resolution. I am not aware of any reports of network meltdown or similar.

In developing countries, or places where the home broadband is poor, the situation may be very different as mobile networks are overloaded by the increase in demand.

So for the fixed telcos consumers will see increased importance in broadband and may be more inclined to trade up to higher rates or more certain connections. But some operators will see lower revenues, especially those who offer content services, those with significant business services, and those with high levels of roaming revenue. For mobile operators, one cost saving to offset lower revenues is that they can slow down their 5G rollout or their capacity enhancement activities for a while - months, perhaps a year or two. Of course, that is bad news for the equipment suppliers.

Should Government do anything? The answer is broadly no. Mobile networks are carrying less traffic and so do not need more spectrum or any other resource from the Government. Most of what the Government can do is inherently long-term and likely to only be in place long after things have returned to normal. Where Government might help is relieving financial pressure on operators. It could:

·        Relax obligations, such as coverage obligations, allowing more time for them to be met.

·        Delay auctions - the spectrum is not needed immediately and the current uncertainty makes valuation and sensible auctioning difficult.

·        Look more favourably on requests for operators to work more closely together, further sharing key resources including sharing spectrum between them.

·        Longer term, Governments might be more concerned about ensuring ubiquitous high-speed home broadband (in which case, good mobile coverage is less important).

It is still early days in the crisis but the picture for telecoms seems rather clearer now.