Defensive position of the telecommunications market against the coronavirus pandemic
Wpis dostępny jest także w języku: polski
In the Polish economic ecosystem there are areas where the coronavirus pandemic, apart from carrying risks, may paradoxically turn out to be a pro-market factor. One of them is undoubtedly the telecommunications industry. PMR is of the opinion that the telecommunications market in Poland will take a defensive position against the announced pandemic in the perspective of this year.
The telecommunications industry can gain
In the face of the global coronavirus SARS-CoV-2 pandemic, individual industries in the Polish economy look at the situation primarily through the prism of limited investments and financial losses in the short term. And this is an undeniable fact, given that the latest macroeconomic forecasts for Poland assume that GDP may fall to well below 2% annually. The rebound is expected only in Q4, and a return to the pre-Coronavirus projection will be possible in 2021. Such industries as trade, catering, hotels and tourism are the ones that will suffer most from the coronavirus pandemic. However, there are areas in the economic ecosystem where the epidemiological situation, apart from the risks, may paradoxically turn out to be a pro-market factor. One of them is undoubtedly the telecommunications industry.
PMR is of the opinion that the telecommunications market in Poland will generally take a defensive position against the announced coronavirus pandemic this year. PMR sees more factors that will have a positive impact on the industry in this context, and the diagnosed negative factors, if any, will not have a strong impact on its economic situation. In such circumstances, the telecommunications market defends itself primarily against the cyclicality of revenues generated from subscription fees. The basic problem, however, turns out to be lower macroeconomic forecasts for Poland, smaller scale of new investments and lower growth projections for GDP. Nevertheless, industry trends will retain a much greater impact on the projected market situation.
The coronavirus will disrupt the supply chain of telecommunications equipment
Factors (in addition to lower projections for the GDP indicator) in connection with the coranavirus pandemic that could have a negative impact on the market include:
- Disruption of the supply chain of telecommunications equipment, components, consumer electronics and terminal equipment produced in the Far East. PMR’s analysis shows that mobile operators’ revenues from sales of dedicated equipment on the mass market are an important catalyst for their business and account for a quarter of their total revenues. If the coronavirus-related epidemiological situation develops over the next two quarters, there may be a significant problem with equipment availability on the Polish market. This, in turn, will translate into problems in the implementation of tender agreements by operators, the scope of which, in addition to services, also includes the delivery of equipment, and even postponing new tender procedures for mobile services. Such conditions will also translate into the conclusion of new contracts and extension of contracts with customers – the share of contracts without accompanying equipment may increase. Thus, operators will record negative trends from the sale of dedicated telecommunications equipment.
- The burden on mobile and fixed telecommunication networks due to the increased volume of data transmission. This is a factor that correlates with the need to close educational institutions in Poland and to work remotely in companies. While working from home does not immediately mean a risk to the quality of telecommunications services – assuming that users will behave in a manner similar to standard, it is created by children and young people, not having to attend educational classes. In this situation, there is an increasing risk of the transmission of various types of video: films, series, video clips or commercials. The lower mobility of adults outside of work may also indicate greater use of video content embedded in the network than before. And without such factors, there is already talk of a slow decline in the capacity of mobile networks. However, such a situation should not be reflected in the operators’ revenues (the issue of permanently paid subscriptions), but the negative effect may include their profitability, due to the costs incurred as a result of potentially congested networks.
- Investment in the development of fibre-optic and 5G networks suspended due to limited mobility of employees and supply of infrastructure, network and telecommunications equipment. In a negative scenario, delays in the commercial launch of 5G and FTTH network services in subsequent locations and their subsequent monetization on the part of operators may result. In the short term, this will mainly mean lower revenues from internet services provided over fibre-optic cable. In the long term, the development of 5G networks will be delayed and, as a result, they will be less competitive with optical networks.
Further increases in the prices of telecommunications services?
However, the potential market-oriented factors may include:
- Higher flow of mobile data transmission. To a large extent this may affect the increased demand for data transmission in phones and additional data packets purchased from individual operators. In such conditions, the revenues of operators in the segment of services provided from smartphones will increase.
- More SIM cards per company. Remote working during the coronavirus pandemic will force selected companies to increase the pool of SIM cards used in phones to increase mobility and availability of more employees. This will somewhat mitigate the negative effect of lower growth of all companies in Poland.
- Higher volume of phone calls made in mobile and fixed-line networks as a substitute for real meetings (social and business). Due to the increased number of called minutes in the retail market, the volume of terminated calls in the wholesale market and thus interconnect revenues of telecommunications operators will increase. The greater impact of this factor will be visible in mobile networks.
- Larger price movements in the market for mobile services. Mainly mobile operators may take advantage of the coronavirus pandemic to further increase the price of mobile subscriptions (mobile services and mobile broadband). This will be dictated and explained by the increased demand for such services due to the limited mobility of the population and compensation for costs generated to handle the increased volume of network traffic (mainly mobile data transmission) on the part of operators.
- Possible greater demand for value-added services in fixed telephony in business, supporting remote corporate and business communication (e.g. Unified Communications solutions, tele- and videoconferences). However, the scale of the phenomenon will not be large and practically limited to the segment of large companies and corporations. Smaller companies in remote communication will mainly use free solution – like Skype and Microsoft Teams.
- The aforementioned increased demand for remote work may force employers to secure the connections between employees’ devices and the company’s office and servers more effectively. As a result, the demand for services of private IP VPN networks may increase, not only in their basic or free form, but also in the form of more expensive solutions with better parameters and guaranteeing stable work with rapidly growing needs of enterprises. Of course, this effect can be only short-term. On the other hand, at least for some companies, the solutions that will benefit and positive experiences with remote working can be implemented permanently.
- Increased demand for data transmission services in the DLISP market. The main catalyst will be the need to increase network capacity to handle data transmitted for streaming platforms, mainly video content services (VOD, OTT, etc.).