Did Any Telecom Firms Actually Benefit from Covid-19?

The most interesting story that might emerge from the Covid-19 pandemic is whether any telecom or connectivity firms actually benefited financially.

Economic downturns--whatever the cause--are not “good” for connectivity providers, even at a time when reliance on communications, mobility and cloud computing might lead one to think revenues “should” be increasing because of that reliance. The Great Cessation of 2020 is not different. 

Service providers have experienced subscriber losses. A revenue contraction has widely been expected, is expected and earnings reports are starting to show that has happened. 

Customer spending dropped because of the Great Recession of 2008.  And one can infer that from job losses from the internet bubble collapse, the Great Recession and the present Great Cessation. 

source: Nordea, Macrobond

The collapse of the internet bubble in 2001, the Great Recession of 2008 and the Great Cessation of 2020 all lead to a cessation of growth at the very least, temporarily lower revenue for most connectivity providers, and bankruptcy for firms in some hard-hit sectors. 

It is not actually hard to explain why. Excess capacity and insufficient demand doomed many firms in the internet bubble collapse. Simply, when one’s customers go out of business, demand drops. Nor are connectivity providers exempt from the reduced expenditures characteristic of all economic downturns. 

Some might casually think the Great Cessation was different. It happened at a time when reliance on communications and remote computing is higher than ever before, but was intensified by mandatory “stay at home” rules. Businesses and schools were forced to close, instantly changing demand patterns. 

Factories stopped producing. Offices and retail businesses were shuttered. Travel fell off a cliff. Employees who got paid to work at home might not have noticed the harshest effects, but many millions of workers simply lost their jobs. Many millions of small businesses ceased to exist. 

And keep in mind that usage is not revenue. As much as at-home internet usage climbed, revenue did not, as such services often are not directly usage based. In fact, mobility and fixed network services often feature what is essentially “unlimited” usage, given the large size of usage buckets. 

In the U.S. market, most mobile customers have effectively unlimited voice calling and text messaging, while fixed network voice and internet access also is effectively unlimited. Most large internet service providers additionally removed usage limits during the lockdown, so usage limits formally vanished. 

So the business impact was that sharply higher usage did not drive revenue higher. Bouygues Telecom, for example, reported improved financial performance “after the lockdown ended.” Some might be tempted to spin that as a “Covid helps” story, but that is wrong. Revenue did not grow until after the lockdown was ended. 

A similar story is almost certain to play out at other telcos. Recessions simply are not good for business.