- Despite showing strong resilience in the first half, operators predict a decline in revenues due to an economic downturn.
- IDC sees a 1.4% decline in worldwide spending on telecommunication and pay-TV services to $1.55tr in 2020.
- MTN Consulting expects second half to be worse than the first half.
- IDC expects pre-crisis spending levels unlikely to be reached before 2022.
Dubai: The telecommunications industry is one of the most resilient sectors of the global economy during the Covid-19 crisis and helped them to avoid major losses in the first half of the year.
Considering the steep drop in economic growths experienced by many countries in the first half of 2020, the telco market hasn’t performed that badly.
The operators’ reports clearly showed that increased demand from the consumer segment during the lockdown, government measures aimed at protecting businesses and the general population from the economic impact of the pandemic.
However, telecom operators’ predictions for the rest of the year are generally more pessimistic as they anticipate a decline in revenues due to an economic downturn that would shut down businesses, raise unemployment, freeze tourist activities, and force people to cut spending on nonessential products and services.
According to industry experts, the negative trend will impact all global regions, but not at the same magnitude.
Recovery seen in 2021
As per International Data Corporation (IDC), worldwide spending on telecommunication and pay-TV services will reach $1.55 trillion in 2020, a decrease of 1.4 per cent year over year.
Industry experts said that the global spending on telecommunication and pay-TV services will decrease this year and expects the market to start its recovery next year, but pre-crisis spending levels will not be reached before 2022.
MTN Consulting said that the second half of 2020 is increasingly looking like it may be worse than the first.
Despite recent earnings report from Ciena projecting third-quarter revenue of $800-840 million compared to $968 million a year ago, CommScope, Intel, Dycom, and Mastec also all projected a weak second half.
Intel noted a change in seasonality, predicting second half would amount to 47 per cent of the fiscal year 2020 revenues, down from the typical of about 54 per cent.
These vendors are more exposed to the US than the average, and the US has dealt with Covid-19 by not dealing with it, in large part.
But Europe and South America also face risks in the second half, even if just because of the interconnected nature of the global economy.
EMEA to see biggest revenue fall
“Even China could see a tough second half, as the initial 5G buildout surge fades and its local vendors struggle to keep their product pipelines moving amidst supply chain restrictions,” Subramanian Venkatraman, Principal Analyst at MTN Consulting, said.
The biggest revenue fall for the year, according to IDC, will be in Europe, the Middle East, and Africa (EMEA), by 2.1 per cent to $469 billion, followed by Asia/Pacific (including Japan and China) by 1.7 per cent to $472 billion because of the larger number of price-sensitive customers in the low-income countries of Africa and Asia.
In the Americas, revenue is expected to fall by 0.5 per cent to $613 billion.
In the remainder of the five-year forecast, Kresimir Alic, Research Director at IDC, said that EMEA and Asia/Pacific are also expected to recover somewhat more slowly than the Americas because the customers in emerging markets are expected to remain cost-cautious for a longer time.
“As countries around the world continue to struggle with new waves of Covid-19 and scientists are still quite far away from al solution to the problem, telecom operators are now focused on efficiency improvements to mitigate the expected negative impacts during the rest of the year,” he said.
However, he said that with additional cost savings, including lower capital expenditures following restrained investment policies, this can still be translated into operative EBITDA growth.