COVID-19 has transformed our world—and the changes are not over. In my previous blogs on Industry Dynamics, Resilience, and Recovery I discussed some of the immediate actions that telecom carriers took to build resilience in the early stages of the disruption and some of the recovery initiatives that we saw telecom companies taking to both capture revenue opportunities and reduce costs.
In this blog post, I will focus on the new reality that telecom companies may experience as a longer-term result of COVID-19. While it’s impossible to say at this point exactly what the new reality will entail, we anticipate that telecom companies will need to deal with the following:
- Retail stores – Some of the purchase and support activity that has been forced online and to call centers is unlikely to return to stores. This could leave large operators with a potential excess of retail stores and smaller channel partners.
- Network demand – Network patterns have been changing in the past few months as customers in different geographic locations move through various stages of lockdown and re-opening. If the work-from-home/learn-from-home model becomes permanent for a slice of the population, we can expect a lasting shift in network usage and demand patterns.
- Churn – Historically, monthly churn rates in the U.S. wireless market have ranged from 1.59 percent to 1.73 percent.1 However, COVID-19 may cause customers to re-evaluate carriers – which could lead to a longer-term uptick in the share of customers who consider switching.
- Capital Investment – Major wireless providers are likely to continue with planned 5G investments, and fixed line providers could also accelerate investment to meet incremental at-home demand.
- Spend Rationalization – Major operators have less liquidity than they did entering the 2008 recession. If conditions lead to a major pullback in consumer spending, operators will need to think about cost reductions, capital budgets, dividends and stock buybacks to ensure financial stability.
KPMG conducted a survey of U.S. wireless customers earlier this year that provides insights into some of these areas. For example, 83 percent of respondents indicated they would be comfortable interacting via online portal/call center to complete a transaction such as changing a contract or switching providers that they would normally do at a retail store. This indicates that reducing store footprints might not have a material effect. The survey also found a marked increase in the share of customers who indicated they are likely to consider switching carriers to reduce costs or upgrade data services as a result of COVID-19.
Evolving customer needs, network requirements, operating cost structures (e.g., retail stores) and investment constraints will require telecom operators to make a series of critical, strategic decisions as the new reality emerges. Scenario planning will become a critical component of the strategic toolset to help identify and align leadership around the optimal course of action.
Learn more about how telecommunications companies are playing a crucial role in addressing the COVID-19 challenge.
- S&P Global Market Intelligence November 2019