The Next U.S. Recession Will Test Resilience of Video, Communications Businesses

Whenever the next U.S. recession happens, we will see whether the many changes in the telecom, cable TV and video streaming markets will change the historic view of how telecom and video entertainment stocks behave during downturns. 

Traditionally, both telecom and cable TV equities have been viewed as resistant to customer defections in recessions as both are “essential” or “important” recurring services. 

But the markets and consumer tastes have been evolving: reliance on mobile phone services and abandonment of fixed network services; substitution or addition of video streaming services and reduced linear video subscription buying; increased importance of internet access and a decrease in importance of voice and linear video services. 

source: Broadband Search, Seeking Alpha 

All of which raises new questions, including the issue of whether streaming services will prove more resistant to customer churn during recessions, compared to linear video. 

Study Title/Author	Findings
"Do Consumers Cut the Cord in a Recession?" by John Beggs and Patrick/2010	Found a slight decrease in cable TV subscriptions, but not a significant decline.
"Telecom Stocks and Economic Downturns" by JPMorgan Chase (Investment Report) /2020	Indicated telecom stocks generally outperform the broader market during downturns.
"The Recession Resilience of Defensive Sectors" by Fidelity Investments (Market Commentary) /2023	Listed telecom as a sector with potential resilience, but noted the importance of specific company financials.
The Recession and Telecom, Deloitte (2009)	Revenue for telecom service providers remained relatively stable during the 2008 recession, but capital expenditures declined.
The U.S. Telecommunications Industry During Economic Downturns, The Brattle Group (2010)	While telecom revenue growth may slow during recessions, it generally holds up better than the broader economy.
Cord Cutting: What Do Past Recessions Tell Us? MoffettNathanson (2020)	Previous recessions saw limited cord-cutting, suggesting cable TV might retain some stability during downturns. However, the study acknowledges the changing media landscape.
Fama & French (1989)	Defensive sectors like telecom and utilities tend to outperform cyclical sectors.
Ang & Timmermann (1993)	Telecom and utilities exhibit lower volatility and higher risk-adjusted returns during recessions.
Blitz & Reichlin (2001)	Telecom and utility stocks are less affected by credit downgrades compared to cyclical sectors.

A recession might accelerate the secular trend of fixed network voice service abandonment, as consumers prefer mobile phone service. Likewise, a recession might also accelerate linear video abandonment rates, considering the relative expense, compared to streaming alternatives. 

To be sure, live sports will be a key issue for a portion of the buying public. Though most observers see a continuing shift of live sports to streaming services, that trend is not as developed, yet. So sports fans might still conclude they have no choice but to keep their linear video subscriptions. 

And that should continue to prop up demand during recessionary periods. 

On the other hand, perhaps a majority of consumers who are not sports fans can buy multiple streaming subscriptions at lower (or near equivalent) prices than they can buy a linear subscription, suggesting the possibility that streaming services could prove more attractive during a recession. 

Also, streaming arguably still is a growth business, while linear video is in decline. Any recession might accelerate such trends. 

source: Ryan Ang, Seeking Alpha 

The most recent recession, caused by the imposition of Covid shutdowns on the economy, might not provide much insight. With the “in person” economy largely shut down in many countries, demand for work from home or learn from home internet access was quite high. 

Take rates and usage of mobility services arguably rose for the same reason. And the value of streaming and even linear TV services arguably was boosted by the lack of other entertainment options. 

So the most-recent major downturns for which we arguably have data would be the 2008 global financial crisis and the 2000 to 2001 dotcom crash, when video streaming was not a mainstream business at scale. 

Connectivity Service Provider Revenue Growth to 2025 is About What You'd Expect

Connectivity provider revenue growth between 2024 and 2025 should be about as most would expect, with a global average of about three percent per year, with slower growth possibly in the one-percent range in North America and Europe, with higher growth in the four percent to 4.5 percent range in Asia-Pacific and Latin America, according to S&P Global Ratings.

source: S&P Global Ratings 

To be sure, executives might wish for faster growth rates, but growth rates in mature markets, especially in industries with “utility-type” characteristics, often are slow. 

Industry	Growth Rate (%)	Source
Telecom	3.2%	Deloitte
Passenger Airlines	7.4%	IATA
Seaborne Goods Transport	3.1%	World Maritime News
Retailing	4.1%	Statista
Retail Consumer Banking	2.7%	PwC
Electricity	4.8%	IEA
Natural Gas	2.1%	IEA
Wastewater Services	3.4%	Global Water Intelligence

Though growth rates in various utility-style industries vary over time, none of these industries are early in their adoption curves, when growth is much faster.

source: Corporate Finance Institute 

As the ILC applies to the connectivity service provider industry, while generally mature, segments within the industry that might be likened to “products” can be at different phases of their life cycles. 

The fixed network voice portion of the industry clearly is declining; the home broadband segment growing. The mobile industry routinely introduced a new generation of mobile services every decade, while sunsetting the older legacy generations as that happens. 

Within the mobile industry, growth is fastest in Asia-Pacific and Latin America; slowest in Europe. 

Industry	2000-2005	2005-2010	2010-2015	2015-2020	2020-2023	Source
Telecom	6.5	4.1	2.8	2.3	3.2	Statista
Electricity	3.8	4.2	3.6	2.4	4.8	IEA
Railroad	4.2	5.1	3.8	2.1	2.7	Statista
Aviation	5.8	5.3	4.2	4.6	7.4	IATA

If one looks at computing devices, “personal computing” clearly has moved through a personal computer stage to a mobile phone stage to a smartphone stage. 

The Economist

At a high level, only fixed network voice is clearly in its “decline” phase. Mobile service is expected to continue replacing its lead platform every decade.

Service	Product Life Cycle Stage	Trends
Fixed Network Telecom Service (e.g., Landlines)	Decline	Facing declining use due to substitution by mobile services and internet communication options (e.g., VoIP).  Limited market growth potential.
Mobile Service	Maturity	Widespread adoption and high market penetration.  Focus on differentiation through network coverage, data plans, and value-added services.  Potential for continued growth in emerging markets.
Home Broadband	Maturity/Growth	High market penetration, particularly in developed economies.  Growth potential in developing economies and through offering higher speeds and bundled services.
Virtual Private Networks (VPNs)	Maturity	Established technology with widespread adoption by businesses.  Potential growth in emerging markets and with increasing security concerns.
Managed Security Services	Growth	Growing demand for cybersecurity expertise and protection against evolving threats.
Data Center Services	Growth	Rising demand for cloud computing and data storage solutions.  Shift from on-premise infrastructure to cloud-based solutions.

What is a Reasonable Growth Rate Expectation for Connectivity Services?

As a rule, utility-type industries and firms (whether formally regulated as public utilities or not) tend to grow at rates just a bit over the underlying inflation rate. So the underlying inflation rate really does matter. 

That might also tend to temper excessive optimism about “telcos becoming techcos” and thereby boosting their growth rates. So long as most of the revenue is earned from supplying the connectivity function, growth rates are unlikely to shift higher. 

But few industries tend to grow at six-percent to nine-percent annual rates, if that is the hope in the connectivity industry. 

Industry	2024 Growth	2025-2028 CAGR
Telecom Services	2.8%	3.2%
Software Development & IT Services	5.8%	6.2%
Applications (Mobile & Web)	8.1%	9.3%
Information Technology (Overall)	3.9%	4.5%
Healthcare	4.2%	4.7%
Retail (E-commerce & Traditional)	4.6%	5.1%
Education (Online & Traditional)	5.5%	6.0%
Renewable Energy & Cleantech	8.7%	10.2%
Financial Services (Fintech & Traditional)	4.9%	5.4%
Manufacturing & Construction	2.1%	2.7%
Transportation & Logistics	3.4%	4.0%

So retail telecom services globally are expected to grow at a compound average growth rate of perhaps 4.9 percent between 2023 and 2028, exceeding inflation rates in most countries (assuming inflation rates decline to around two percent). 

The actual range of forecasts runs from about two percent up to six percent in some cases, with global expectations in the two percent to three percent range, a blend of higher rates in Asia, probably North America and the Middle East and lower rates elsewhere. 

The global electricity market is expected to grow at a CAGR of 3.3 percent between 2022 and 2027, again exceeding inflation. 

The global water utilities market is expected to grow at a CAGR of 3.9 percent between 2023 and 2032, exceeding inflation. 

Likewise, the global waste management market is expected to grow at a CAGR of 4.2 percent between 2022 and 2027, exceeding inflation.

Region	Analyst Firm/Source	Predicted Growth Rate 2024	Predicted Growth Rate 2025-2028 (CAGR)
Global	GSMA Intelligence	2.8%	3.2%
North America	IDC	2.3%	2.9%
Europe	Analysys Mason	1.7%	2.5%
Asia Pacific	Deloitte	4.5%	4.8%
Latin America	Ovum	3.2%	3.8%
Middle East & Africa	Ericsson	4.8%	5.3%
China	China Academy of Telecommunications Research	3.1%	3.5%
India	India Brand Equity Foundation	6.3%	7.1%
Japan	Telecommunications Carriers Association	1.2%	1.5%
Germany	Bitkom	1.9%	2.3%
Brazil	Teleco Síntese	2.7%	3.3%
Nigeria	GSM Association	6.7%	7.5%