Thus far, the telecom sector has not been impacted as dramatically by the COVID-19 market disruption. While the lockdown has brought much of the economy to a halt, it has created new demand for communications services: work-from-home, remote education, home entertainment, and isolated consumers reaching out to friends and family.
The impact is reflected in equity markets, where an index of telecommunications services stocks dropped by 18 percent between mid-February and early April, compared with a 27 percent drop for the overall market.1
Market behaviors that have changed and potential impacts on the industry include:
- Broadband. Demand for residential broadband has increased materially due to work-, school-, and entertain-from-home activities. These activities have driven traffic volumes for voice and data services (for video conferencing, streaming, gaming, VPN and other traffic). Comcast, for example, reported a 212 percent increase in VoIP/Video conferencing), a 40 percent jump in VPN traffic, 38 percent higher video streaming, and a 24 percent jump in mobile data over WiFi for March 2020 over March 2019.2
- Mobility. Mobility patterns have changed radically under stay-at-home orders and social distancing rules. Cellphone tracking data indicates that in counties where stay-at-home orders were in place by March 27, average mobility decreased by approximately 85 percent from the previous month.3 These changes have implications to network designs and operational management processes for the carriers.
- Voice. Voice traffic increased and patterns changed for all major carriers in March. Verizon experienced a 25 percent increase in total voice traffic and a 10 percent increase in wireless voice traffic.4 AT&T reported a 76 percent increase in Wi-Fi voice traffic, a 65 percent increase in residential voice, and a 33 percent increase in wireless voice.5 T-Mobile reported a 17 percent increase in call duration.6 Calls shifting to home environments have varying impact on both major carriers and competitors.
- Video. Streaming of both static and live video content is up dramatically. Nielsen estimates that minutes streamed to TVs were up 85 percent over March 2019.7 Zoom founder Eric Yuan posted in a blog on April 3rd that Zoom had over 200 million daily meeting participants in March, compared to a maximum of 10 million in December 2019.8 This is placing significant new demand on telecom carrier networks.
- Cord cutting. Cord cutting may further accelerate, increasing the burden on telecom networks from over-the-top content delivery. eMarketer estimates that cable households dropped by 6.5 percent in 2019. This trend could increase as more consumers try streaming apps and rebalance budgets due rising unemployment, or drop cable due to loss of sports programming, such as the Olympics.9
Together, these changes could force a re-evaluation of major strategies and capital investment plans, including plans for wireless/wireline/content integration and 5G network designs, build patterns and timing.
Many telcos are currently focused on near-term issues such as dealing with store closures, identifying actions to mitigate the impact of the lockdown and disruption on customers, making changes to price plans, and understanding regulatory changes such as the FCC’s Keep Americans Connected program.
Companies should begin working on strategies to compete in the post-COVID-19 reality. Taking into account the forces described in this paper, companies should consider an integrated framework to help drive coordinated and strategic action, including examples below:
- Resilience – Immediate actions to preserve cash, give confidence to customers and employees and ensure business continuity - the “Four C’s” (Customer, Cash, Cost, Capital):
- Customer examples: adjusting late fee and overage policies, evaluating renewal price/commitment tradeoffs, monitoring service quality under new usage patterns
- Cash/Cost/Capital examples: evaluating debt financing opportunities, monitoring working capital, assessing short-term cost savings (e.g., discretionary marketing spend)
- Recovery – Performance improvement actions to make it through a likely recession and maximize options in the face of uncertainty:
- Customer examples: updating customer retention programs and models to minimize churn, adapting offers and acquisition activities for changing conditions and behaviors
- Cash/Cost/Capital: Revisiting network capital investment plans in light of changing demand and usage patterns, shifting spend from retail to call centers, adjusting advertising mix and messages, proactively managing bad debt expense
- New reality – Actions resulting from assessing new opportunities that arise as customer and market disruption settles into a ‘new reality’, such as:
- Taking actions to better serve the needs of customers who permanently increase work-from-home, remote-learning, and over-the-top entertainment activities
- Adapting retail store footprints, subsidies and distribution models to maximize value in an environment where customer purchase drivers may be different
Over the coming weeks I will examine each of the components of this integrated framework in detail, with dedicated blog posts identifying specific actions and considerations for telecom companies as they navigate this challenging time. While market dynamics are shifting quickly and the future remains uncertain, companies that focus on moving from short term challenges to recovery and preparing for the new reality, will emerge in the best position.
Learn more about how technology, media and telecommunication companies are playing a crucial role in addressing the COVID-19 challenge.
- KPMG Analysis of telecommunications companies traded primarily on major U.S. exchanges between Feb. 19 and April 3; includes 32 companies
- Data usage increase on Comcast’s network in the United States in March 2020, Source Comcast
- Where America Didn’t Stay Home Even as the Virus Spread, The New York Times, April 2, 2020
- Period between Thursday March 12, 2020 and Thursday, March 19, 2020
- Comparison of activity on Sunday, March 29, 2020 to an average Sunday
- Represents two-week period ended March 24, 2020
- Represents two-week period ended March 24, 2020
- April 1, Zoom post to users
- US Pay TV vs. Non-Pay_TV Households 2015-2024, eMarketer, Feb., 2020