Will Conventional Wisdom About Pandemic Winners Prove Wrong?

Conventional wisdom about the financial impact of Covid-19 stay-at-home policies is that they will devastate small businesses and the self-employed, throw most economies into recession and slam firm earnings for a couple quarters to a couple of years. 

The conventional wisdom also suggests connectivity providers might see a bit of revenue deceleration from firms that go out of business and lower levels of business activity, though possibly balanced by some slight uptake of consumer spending for internet access and streaming video services. Most consumer apps arguably are getting much more use as well. 

Almost everyone would expect revenue lift for suppliers of videoconferencing services, though the long-term impact is harder to predict. 

Conventional wisdom might prove to be wrong, though, especially when temporary behavior is extrapolated into the future in a linear way, to suggest a big permanent change in business and consumer behavior. Underlying and pre-existing trends of all types are likely to get a boost, to be sure. 

But the amount of permanent and on-going change is almost certainly going to disappoint. 

The “problem” with many internet services and apps is that usage does not change in linear fashion with usage, as consumption of voice services once did. A dramatic increase in home internet access usage does not necessarily lead to increased usage charges. So perhaps costs are up marginally, but revenue does not change. 

You might assume newly-popular videoconferencing services such as Zoom would be seeing instant lift in revenue (at least at the margin) as usage explodes. But that would be true only if substantial numbers of new accounts and users are of the for fee type, and that seems quite unclear at the moment.

Every ad-supported consumer app faces cutbacks in advertising. Surely streaming services will be winners, one might think. In a narrow sense, yes. But the owners of many streaming services have other huge revenue components with zero revenue (theme parks, theatrical release of new movies, merchandise sales, cruise operations and so forth). Overall firm revenue will fall, even if some lift in streaming revenue might occur.

There arguably was some initial lift in sales of PCs as people faced the reality of more time and demand on their computing devices. But that is balanced by almost-certain reductions in business spending on all manner of information technology, as projected revenue falls. 

Mobile phone sales are likely to fall, as retail stores have been closed. Cloud computing suppliers will win, as increased usage means more demand for computing and storage services, at least temporarily. But there could be issues unrelated to the increase in cloud computing demand. 

Amazon is selling more, to be sure. But it also is shipping more, which means higher costs. That does not directly affect Amazon Web Services revenue, but does mean total firm results are going to be influenced by other parts of the business. 

Microsoft does not face e-commerce shipping cost impact, but will see lower hardware and possibly software revenues, but if those revenues are reported in a category that also includes servers and server software, the total impact is unclear, with both revenue increases and decreases. 

The point is that usage does not equal revenue in any linear way. Nor can be extrapolate from present trends in a linear way. The touted “new normal” might, in five years, simply be the “old normal” with a temporary spike or dip in underlying trends. 

If you look at remote work trends over a 40-year period or so, growth has been slow and steady, despite periods of boom and bust. No “new normal” has emerged. Of course, one always can argue that the inflection point simply has not been reached, and it will in the wake of the pandemic. 

But 40 years is a long time to wait for an inflection point. Looking at many other services with that lifespan, one might more fruitfully argue that if an inflection has not happened yet, it may never happen.

Flat Global Telecom "As Far as the Eye Can See"

The people who write press releases quite often are not subject matter experts. If they were, wildly incorrect headlines such as “Worldwide Spending on Telecommunications Services Is Forecast to Reach $1.6 Billion in 2020, According to IDC” would not appear in press releases. Global telecom revenue is closer to $2 trillion per year, almost every year. Ignoring the typo, the larger point is how flat revenue is going to be, globally.

source: IDC

Somebody was not watching closely enough. Earlier IDC press releases had called for $1,647 Billion in 2020. That’s $1.645 trillion. 

IDC’s 2018 forecast called for revenue of, you guessed it, about $1.62 trillion. 

Global Regional Services 2018 Revenue and Year-on-Year Growth
Global Region	2018 Revenue ($B)	CAGR 2018-2023 (%)
Americas	616	0.0
Asia/Pacific	512	0.8
EMEA	487	0.9
Grand Total	1,615	0.5

source: IDC

The wider point, though, is that global telecom revenue--despite faster growth in some regions--has become a slow-growth business once again, as was the case in the monopoly era prior to about 1985.

Virtually all Telco Products are Now "Contestable"

“Once industries become digital, they also become digitally contestable, meaning companies from outside the traditional industry confines can enter and compete more easily,” consultants at Accenture said five years ago, urging firms not to delay the adoption of industrial internet of things capabilities.

That same Accenture statement also neatly encapsulates the core change in connectivity provider business reality. Once telcos and all other service providers decided to embrace internet protocol as the universal next-generation network; having also decided to virtualize applications and their delivery, the whole telecom business lost much of its moat.

Some 20 years ago, the global telecom industry, evaluating either asynchronous transfer mode or internet protocol for digital applications, chose IP, the computer industry favorite for networking,  instead of ATM, the telecom proposed standard for next generation networks.  It was a fateful decision, and the right choice, even if there have been huge unintended consequences. 

To the extent closed telecom networks allowed firms to tightly control all apps on the network, open IP networks essentially destroyed much of the traditional moat. 

The moat, in business as in medieval warfare, was the protective ring of water around a castle that hindered attackers from reaching a castle’s walls. In business, moats are any ways a business is able to  maintain competitive advantages over its competitors, allowing the firm to protect its long-term profits and market share from competing firms. 

Choosing IP also meant abandoning much of the business moat that had allowed telcos to control virtually all apps they chose to create and sell to their customers. Over time, sales of data networking services to enterprises had grown, and telcos never expected to program those pipes. The applications were created and chosen by the customers, while the telco simply supplied the networking.

Today, the pattern has changed. Every application runs “over the top” of an access pipe. The network, in essence, is open. Apps can be created, owned and offered to customers by virtually any company or entity, using the open access pipe. So telcos still create and own their own messaging, voice, linear video or virtual private network products. 

But the big change is the draining of the moat. Today, any app provider can reach a telco’s customers, using nothing more than the open internet access pipe. That is a fundamental change in the business environment. 

These days, almost every product is “contestable.” The shift to digital delivery is one driver. But competition also has changed the business dynamic. Where a monopoly provider might well assume at least 95 percent capture of the addressable market, in competitive markets, a reasonable expectation of share is between 20 percent to 40 percent of the market. On top of that, legacy markets tend to shrink over time, as new replacement products emerge, and demand for legacy products shrinks.

Size of Remote Work Markets Depends on How You Define It

More people are working at home, and have been since 1980. Some believe those trends will accelerate in the wake of the Covid-19 pandemic. But it is hard to pinpoint the lasting impact of episodic events when the underlying trends already were in motion. One substantial driver is the number of home-based businesses (the self employed). 

The other figure is the number of employees of firms who work remotely, full time, half time or only episodically. Both have grown since 1980, but it is not always clear whether a home-based business qualifies as remote work, when we try and quantify the impact of employees working from their homes. 

One study found that there are 6.6 million home-based businesses in the United States, employing more than 13 million people nationwide, in 2008. If there were 120 million full-time employees in 2008, then the self-employed and working from home workforce was itself about 11 percent of the total base of full-time employed people. 

So one to two percent of remote workers would not at all be surprising. One has to exclude all home-based businesses from the statistics to get a picture of what amount of employees actually work from home, full time. 

In 2017, three percent of full-time U.S. workers answered that they primarily “worked at home,” according to the Federal Reserve Bank. More casual work from home--a few days a month--also increased. Self-employed people were quite commonly working full time from home. 

The Federal Highway Administration’s 2017 National Household Travel Survey (NHTS), found that an additional seven percent of full-time workers telecommuted four days or more per month.

source: Federal Reserve Bank

Over time, the number of people working from home has slowly grown. The percentage of all workers who worked at least one day at home each week increased from seven percent in 1997 to 9.5 percent in 2010, according to the U.S. Census. That is growth of 2.5 percent over about 13 years. 

During this same time period, the population working exclusively from home increased from 4.8 percent of all workers to 6.6 percent. Keep in mind, though, that “nearly half of home-based workers were self-employed, the Census Bureau reported. 

Adjusting for that fact, the percentage of employees working full time at home was 3.3 percent. 

The population working both at home and at another location increased from 2.2 percent in 1997 to 2.8 percent of all workers, in 2010. That is 0.6 percent over a 13-year period. 

The percentage of workers who worked the majority of the workweek at home increased from 3.6 percent to 4.3 percent of the population between 2005 and 2010.

About one-fourth of home-based workers were in management, business, and financial occupations, while home-based work in computer, engineering, and science occupations increased by 69 percent between 2000 and 2010.

source: U.S. Census

As always, definitions and assumptions matter when making predictions. One can cite big number for remote work, if one includes people who work from home once a week or a few days a month. One gets smaller numbers if only counting people who do so half time or full time. 

And one almost has to eliminate home-based businesses run by the self-employed entirely. They absolutely matter when looking at markets and activities related to work from home. They might not count for remote work conducted away from a home office or other company site.

Extrapolating Remote Work Trends from Immediate Circumstances is Likely Not Wise

Some of us have been hearing predictions about the growth of remote work (it used to be called telecommuting) for four decades or so. And while there have been secular changes, it is difficult to make a case that anything really has changed the adoption curve of full remote work, even if lots of people take some work home from the office, routinely. The underlying trends are what they are, and might get something of a boost, but that might be hard to detect.

A Gartner survey of 229 human resources leaders finds execs now believe more remote work will be done by their employees, post pandemic. “While 30 percent of employees surveyed worked remotely at least part of the time before the pandemic, Gartner analysis reveals that post-pandemic, 41 percent of employees are likely to work remotely at least some of the time,” said Brian Kropp, Gartner HR practice chief of research. 

What all that means is not yet clear, as the definitions of remote work vary widely. Some of us might consider remote work to be “employees who are based full time at remote or home locations.” 

Others might include employees who work remotely at least half the time. That is a very small number of people, at the moment, perhaps as few as 3.6 percent of the entire workforce, by some estimates. 

The number of U.S. employees working at home 50 percent of the time or more in 2020 is estimated at five million, representing 3.6 percent of the workforce, according to Global Workplace Analytics. And that is after 40 years of evangelization that some of us are personally aware of. 

But most people likely take a broader view of remote work, including some work from home days each week or month. 

In the past, “telecommuting” has generally been thought of as employees working “at home” sometimes--or full time--instead of at the office, campus or plant. That sort of thing might not differ much from workers occasionally or even routinely bringing some work home from the office. 

One way of setting a reasonable universe of potential remote work is to evaluate the total number of jobs that conceivably could be done entirely remotely. By some estimates, only a third of jobs can be done remotely, according to a study conducted by professors Jonathan Dingel and Brent Neiman of the University of Chicago Booth School of Business. 

The study suggests 34 percent of U.S. jobs can plausibly be performed at home. Assuming all occupations involve the same hours of work, these jobs account for 44 percent of all wages. The converse is that 66 percent of jobs cannot plausibly be shifted to “at home” mode. 

If we assume that most people will consider “working from home” sometimes as a valid case of remote work, the universe of jobs appears to be close to 34 percent, looking at jobs that can be completely remote, full time. Using less stringent definitions would produce a higher number, but the value of such estimates might be questionable. 

It is not clear that the actual requirements of remote work, done on a casual or occasional basis, actually include much more than having a smartphone, a PC and adequate internet access at home, plus the standard cloud computing apps typically used in an office. 

More specific computing tasks, requiring sophisticated equipment (robots or industrial or process machinery) are not the sort to be done at home on a casual basis. 

To be sure, some executives will look to reduce spending on office facilities by shifting some work to full remote status, while allowing others to work substantially from home. But technology is not the only issue. Managers must trust that worker productivity remains substantially the same when work moves remotely. 

But recall that similar predictions were made in 2009 when the HiN1 virus outbreak happened. It is by no means clear that some non-linear acceleration of remote work trends happened after that, and was sustainable. 

U.S. Cable Internet Demand Stays Flat, After Initially Jumping Because of Stay-at-Home Policies

U.S. cable operators have about 66 percent of the installed base of internet access customers, so the performance of cable networks during the stay-at-home policies tells us quite a lot about the speeds and performance most consumers now experience. 

On U.S. cable networks, downstream peak growth remains flat for the second consecutive week, up just 0.65 percent for the week of April 4 to 11, 2000, according to the NCTA.

National upstream peak growth continues to decelerate for the second consecutive week,

up 0.71 percent for the week of April 4 to 11 compared to increases of four percent and seven percent the previous two weeks.

Provider backbone networks have significant capacity and show no signs of congestion, the NCTA says. 

source: NCTA

LIes, Damn Lies and Statistics, Again

“Lies, damn lies and statistics,” Samuel Clemens once quipped. As always, assumptions matter, when assessing internet usage or anything else. 

Perhaps 15 percent of Americans do not use the Internet at home, some argue. Two explanations always are advanced: people do not want to use the internet, or the price is too high. 

A recent survey by the National Telecommunications and Information Administration shows 58 percent of non-users say they do not use the internet because they are not interested. That same survey had 21 percent of non-users saying they did not use the internet because it was too expensive. 

A report published by the National Digital Inclusion Alliance argues the price of service “is the principal reason people do not subscribe to broadband.” 

Some say the results are skewed because the surveys relied upon in the NDIA Report “no longer permit respondents to indicate a lack of interest as the reason for not using the Internet at home, despite this reason being the most frequent response provided in earlier editions of these same surveys,” says a new analysis by the Phoenix Center for Advanced Legal and Economic Policy Studies. 

“A more thorough analysis of the surveys relied upon by the NDIA Report reveals that non-price factors dominate price as the determining factor for not using the Internet at home,” the Phoenix Center says. Measures of price sensitivity, on the other hand, would be useful for informing policy, they argue. 

That is simply a matter of logic. If a respondent says a product is too expensive, then it should certainly matter what price would prompt a purchase. If a respondent says “I do not need that product,” no price drop is likely to lead to purchase and usage. 

Indeed, that conclusion is what the NTIA finds. Of the reported non-users, more than half say they would buy at a lower price. Only eight percent of those reporting “no need or interest” would consider buying at a lower price. 

Internet at Home	Use at Home	No Need/Interest	Too Expensive
Total Households	99.2 million	16.2 million	6.0 million
Family Income < $25K/Year	17%	41%	51%
School-Age Child Present	26%	11%	24%
Located in Rural Area	12%	19%	15%
Household Reference Person* Characteristics
Mean Age	49.4	62.8	48.7
No Post-Secondary Education	30%	64%	60%
White, non-Hispanic	68%	64%	48%
Internet Usage Details
Internet Use at Other Locations	84%	15%	31%
Previous Home Internet Use	N/A	11%	25%
Would Buy at Lower Price	N/A	8%	51%

source: NTIA

Including all U.S. residents, including those as young as three years old, somewhere between 72 percent and 80 percent of all residents use the internet, presumably including any usage, on any device, on any network, at home or at work, the NTIA also notes. 

That might strike you as a low figure, since for most of us, everyone one knows uses the internet. 

source: NTIA

The point, as always, is that assumptions always matter.