COVID-19 and creating resilience in the telecom industry

COVID-19 is rapidly transforming our world and creating new challenges for businesses across all industries. Telecom companies are having to navigate new challenges and opportunities such as surging broadband demand, shifting mobility patterns, and the risk of increased cord-cutting.

In my previous post, I discussed these challenges and outlined a three-step approach for responding to COVID-19. Here we will focus on one key action: building resilience.

Building resilience includes immediate actions that give confidence to customers and employees, preserve cash and enable business continuity. While many businesses are already undertaking actions, it is important to continuously review your response and identify gaps or further actions to take.

The KPMG model for resilience is organized around the “Four C’s”: customer, cash, cost, and capital. For telecom companies, these are possible actions:

• Customer. U.S. telcos have taken many customer-focused actions over the past 60 days. These have included reducing the footprint of retail stores, waiving late fees, deferring terminations, increasing data allocations, and creating new offers in response to COVID-19, such as programs to support remote learning.

These actions appear to be contributing to a stunning improvement in consumer perception among major carriers. KPMG analyzed social media sentiment and found a 72 percent positive sentiment for the major wireless providers in March; up from 23 percent in the prior period.

Carriers should continue to evaluate opportunities to build positive sentiment with customers, which ultimately should increase loyalty. Leaders may want to take lessons from other industries, such as Uber who recently launched the Eats Pass, which offers customers multiple benefits for a monthly fee.¹ Telcos could look for similar opportunities to engender loyalty, stimulate trial periods, and ultimately retain customers who sign-up for new services during this time.

• Cash. With strong demand for communication services, we do not anticipate that many telecom companies will face an immediate cash crunch. However, it’s important to understand the potential impact on cash from customer actions such as deferred payment offers. It’s also better to understand what a worst-case disruption scenario could look like in advance, and proactively identify actions that could be taken as needed. Companies are modeling a range of disruption scenarios to understand how changes in customer demand and/or ability to pay could impact the company’s cash position.
  

Telecom CFOs have many ways to enhance working capital, from operational actions such as managing payment terms more carefully or offering incentives for customers to pay early, to financial actions such as eliminating stock buy-backs, tapping credit lines or reducing dividends.

• Cost. While the telecom sector is not facing the immediate need for short-term, significant cost reductions because of revenue issues, operators should continuously re-evaluate discretionary spending as it impacts rising unemployment and a recession ripple through the economy.
  

One typical area to consider for cost reduction is advertising, as spending has historically tracked with GDP growth. For example, during the Great Recession that began in 2007, advertising spend dropped by only 4 percent according to Kantar Media². Of course, the ability to reduce advertising spend has a double-edged impact on carriers with significant media operations.

• Capital. As part of a resilience plan, telecom companies should assess immediate network investments required to provide quality service under modified demand patterns (i.e., heavy work-from-home / reduced mobility), and determine if adjustments in capital allocation are merited. (I will discuss long-term capital plans for the new reality in subsequent blogs, including 5G buildout considerations).

Finally, it’s important to note that compliance and risk-management processes have also been impacted, but the need to produce quarterly financial statements and maintain internal audit controls remains. We’ve seen many companies take tactical actions to manage risk and compliance in an unplanned, remote-work model.

In summary, the telecom sector has seen less disruption from COVID-19 than some other industries. This means that telecom players should start looking forward to the new reality – keeping the Four C’s in mind and identifying actions that give confidence to customers and employees, preserve cash, and support business continuity.

Learn more about how technology, media and telecommunication companies are playing a crucial role in addressing the COVID-19 challenge.