While the telecommunications industry has been receiving well-deserved attention and praise recently, the coronavirus outbreak has put it at risk of penalties and decline.
Vodafone Group PLC, the world’s second-largest mobile operator, last month said data traffic had surged 50%, yet its stock is down 23% – the same as the FTSE index.
Deutsche Telekom AG, Bouygues SA and Telia Company AB are also among only a few large telecoms companies to delay or reduce dividends or downgrade forecasts due to the virus and investors fear there’s more to come.
As lockdowns worldwide drive a surge in internet use, boosting online sales for businesses through gaming and food delivery, the stocks of internet providers are an unlikely laggard on global markets.
Around the world, millions of people are unable to leave their homes and businesses are closed as governments restrict movement to curb the spread of the virus which has led to over 113,000 deaths and 1.7 million infections worldwide.
Roaming revenue has also disappeared as airlines have grounded planes. This has meant more than $25 billion has been lost according to Juniper Research.
At the same time, telecoms companies are facing the possibility of a decline in new contracts as individuals face unemployment and inevitably being unable to pay their bills.
Ralph Dommermuth, chief executive of German telecommunications firm 1&1 Drillisch AG said that due to flat-rate deals, the company is hardly get any extra revenue if people spend more time surfing or talking on the phone.
“I can’t yet say whether more time being spent in the home office will compensate for revenue losses that will arise because many companies or private individuals have to put off renewing their contracts or can’t pay their bills.”
Globally, a 13 per cent drop in the MSCI world telecommunications services index has become less important compared to healthcare and is down 6per cent. Technology is down 8 per cent, while consumer staples is down 10 per cent.
In Asia, Africa, Europe and the Americas, a combination of high fixed costs, debt and market disruption has left telecoms firms significantly underperforming the “data-hungry” businesses their networks carry.
As a result, this has driven business and entertainment online, but left telecoms spending to service surging demand, and, with fixed pricing structures with no quick way to monetise the investment.