"High Tech, High Touch" Patterns Will Return

The prevailing wisdom about business life after Covid-19 often is that “nothing will be the same.” In place of “high touch” face-to-face meetings, businesses are going to substitute “high tech” virtual sales and marketing. That might happen, to a significant and permanent degree. 

At the same time, firms are going to rediscover the value of face-to-face, “high touch” activities, perhaps to the same degree as they shift to virtual “high tech” operations. It has been a 40-year trend. 

Some of us remember a 1982 book called Megatrends by futurist John Naisbitt that popularized the phrase “high tech, high touch” to describe a coming trend: that as we began to use more technology, we would equally appreciate “high touch” human or non-technological interactions. He explored how that had evolved in his follow-on book High Tech, High Touch. 

Here’s the important insight into post-Covid-19 business behavior: High-touch refers to the human and emotional aspects of business interactions, including the establishment of trust. 

Virtual support can be quite effective once a business relationship and trust have been established. But it arguably will be harder to create trust with a new prospect using only “high tech” tools. 

High-touch refers to close relationships with customers, interacting with people, not just machines.  To be sure, that arguably can be done, up to a point, virtually. But high-touch also arguably requires above-average interaction with customers, and that includes face-to-face contact. 

High touch--helping customers on a human level through various stages of the buying process and lifecycle--involves a much higher participation, and usually relies on one individual or team within the company to maintain direct, personal and frequent contact with accounts, says ESG. 

“Humans crave the kind of interaction that only other humans can provide,” and likely cannot always be provided by conferencing tools. 

It’s one that places the priority on human interaction and human relationships, not on efficiency or speed. That is why travel services emphasize both touch and tech. 

“In a high tech world, people are longing for balance,” notes EHL Insights. As important as technology has become for customer experience and support, “authenticity” and “emotion” also are emphasized. There is an analogy for business-to-business sales as well. 

This “reversion to mean” happens quite often. Right now, professionals now rely on videoconferencing to supplant face-to-face meetings because nothing else is possible. But after the pandemic ends, prior trends will reassert themselves.

That has proven to be true for industries and economies in recoveries from major economic disruptions in the recent past. 

If evidence from three past global recessions--but not the Great Recession of 2008 and the Great Cessation of 2020--provide any useful insight, the recovery might take between three and 4.5 years, perhaps three years for public companies, perhaps 4.5 years for the overall economy. 

Some 17 percent of public  firms will not survive. That is the percentage of public firms that went bankrupt, were acquired, or became private, in the aftermath of the Great Recession. 

About 80 percent of the survivors had not yet regained their pre-recession growth rates for sales and profits three years after a recession. 

About 40 percent of the firms had not returned to their absolute pre-recession sales and profits levels after three years. 

Ranjay Gulati, Harvard Business School professor and Nitin Nohria, Harvard Business School dean, conducted a study in 2010 of corporate performance during three global recessions: the 1980 crisis (which lasted from 1980 to 1982), the 1990 slowdown (1990 to 1991), and the 2000 bust (2000 to 2002). 

Obviously, the two big events missing from the study, because of the timing, were the Great Recession of 2008 and the current “Great Cessation” of 2020. Still, their findings are useful for charting the likely path of recovery after the Covid-19 pandemic recedes into history.

They studied 4,700 public companies, breaking down the data into three periods: the three years before a recession, the three years after, and the recession years themselves. 

At a macroeconomic level, the U.S. economy had not recovered its pre-2008 levels by 2011, three years after the Great Great Recession of 2008. 

source: Bureau of Economic Analysis

U.S. growth rates returned to 2007 levels about 4.5 years after the Great Recession. Latin America and some Asian countries bounced back really fast, in about 1.5 years.

So if the recovery from the Great Cessation follows the Great Recession pattern, it will take about four years for gross national product to return to 2019 levels. 

The impact on household wealth was starker, as median household net worth still had not reached 2007 levels by 2018, 10 years after the Great Recession. Job levels in the United States had returned to 2007 levels by 2014 (about six years after the Great Recession). 

Still, prior trends reasserted themselves. That is likely to happen with face-to-face “high touch” sales in the business-to-business markets as well. It might take some time, but it is almost certainly going to happen. 

Are Covid Remote Work Trends Permanent?

Nobody yet can predict whether long-lasting changes in business and consumer behavior will be permanent after the Covid pandemic passes. Supply chains already were changing, in advance of the pandemic, for example, so that trend virtually certainly will remain intact. 

For suppliers in the connectivity business, some speculate there could be longer-term moves by businesses in the direction of remote work that are permanent. It might be easy to predict that more personal and business activities will be conducted virtually, online and remotely, for example. That might be mildly helpful for connectivity providers, though the trend has been in place for many decades. 

Related trends such as use of videoconferencing, telemedicine and cocooning might arguably also remain bigger changes that have connectivity provider implications. More work-from-home might get a boost as well. 

But consumer behavior in a crisis often does not actually become permanent. How many of us actually believe the present shift to buying of “essentials” remains intact after the crisis passes? Who doubts that consumption of “non-essential” or aspirational products will not return to past levels? 

source: Bloomberg

All that happens against a productivity and economic growth background that might explain behavior more than episodic recessions or expansions, though. The U.S. Bureau of Labor Statistics, in 2014, predicted that “the 2007–2009 recession and other factors will have an adverse effect on the U.S. economic outlook through 2022. 

One poll of consumer spending suggests spending levels remained depressed after the 2008 recession for at least seven years, never reaching pre-recession levels during that period. 

In other words, the impact on growth, jobs and spending from 2008 would last 13 years. 

“The aging of the population, lack of business investment during the recession, and high long-term unemployment are expected to place constraints on potential GDP growth, BLS said in 2014. “As such, U.S. GDP is not expected to attain the higher growth rates that are typically seen following recessions.”

A “new normal” of slower growth was predicted. Those predictions turned out to be wrong on the low side. 

That thinking is predicated on changes in consumer behavior some say remained permanently altered in the wake of the great recession of 2008. Certainly consumer spending appeared more restrained than many expected six years after the recession. 

Some argue that changed consumer buying preferences in the immediate wake of the 2008 global recession would become more-established behavior longer term. One such trend was consumer willingness to experiment with lower-priced brands. 

Still, it is hard to separate other secular trends from the specific changes wrought by the disruption. Customers in 2020 are more likely to buy organic products or  fair-trade goods, for example. But those trends were in place even before the 2008 global recession, and tends to run counter to the “lower-priced goods” trend some say that recession introduced. 

But a decade after 2008, some would note that a search for value remains intact. What is not clear is “why?” A counter argument could be made that the general experience with online shopping has accustomed consumers to lower prices, generally, and that this behavior is not a lasting result of the 2008 recession.

Also, millennials facing job market toughness might have developed receptiveness for value for income-related reasons. 

Some changes might have happened with savings rates, though that also might be explained, in part, by millennial job issues. 

The point is that it is very hazardous to predict how consumer or business behavior might change over a 10-year period, based on reaction to a recession or biological shock. We could well see a several-year period where behavior seemingly has altered, only to see the effects disappear after that. 

It seems safe to say that larger trends such as the application of cloud computing, artificial intelligence, internet of things and edge computing will continue. Some might call that “digital transformation.” 

What remains to be seen is whether shifts to remote work, work from home and some other trends become permanent features of business behavior at much-higher levels than was the base case before the Covid pandemic. 

History suggests we might not know for a half decade or so.

Are Mobile Services and Home Broadband Really Recession Proof?

Are mobile services and home broadband now “recession proof?” Maybe “recession resistant” is a better characterization. A recession will temporarily halt revenue growth patterns for most suppliers. The bigger question is “how much?” and “how long” the dip will last. 

The probable answers are that growth will turn mildly negative, with that trend lasting perhaps “12 to 18 months. In a worst case scenario of a major and severe recession, the revenue growth dip might be more severe, but probably would not last any longer than a mild recession would cause. 

To be sure, this story is cyclical, not secular; short term rather than long term. The exception to the general trend is the widespread economic shutdown caused by the Covid pandemic, which arguably increased the level of spending, most connectivity suppliers would say. 

Cyclical trends are those which correlate to business cycles while secular trends tend not to correlate. The amount of money consumers spend on various types of products tends to be cyclical: up in good times, down in bad. 

Secular patterns tend to persist across business cycles, such as more spending or engagement with digital products; greater reliance on remote or cloud computing; greater reliance on e-shopping compared to place-based retail. 

As recession looms, we’ll see many more stories about how consumers and businesses are reacting to recessionary conditions. As virtually always is the case, discretionary spending will drop. 

And the issue always is whether mobile phone service, home broadband or other connectivity services are more discretionary or more essential. The historical data suggests mobile phone service and home broadband are more “essential” than “discretionary.”

In recent recessions, consumer spending on mobility and home broadband has dipped, but only slightly. On the other hand, a severe recession, such as happened in 2002 and 2008, will cause significantly more disruption, doubling or tripling the percentage declines. 

Product	Percent Change During Recessions	Percent Change in Buying Behavior for Prior Recessions
Mobile Phone Service	-2%	-5% in 2002, -1% in 2008
Home Broadband	-1%	-3% in 2002, -1% in 2008
Video Entertainment	-2%	-5% in 2002, -1% in 2008

So much depends on the severity of the coming drop, though some (a minority) observers believe it is conceivable no drop will actually happen. Most observers believe a recession will happen, and the issue is whether it is a mild or severe. 

Some might argue that mobile service and home broadband are “recession proof.” Some might argue “recession resistant” is a better characterization.

New Normal or Not?

Statements that “everything has changed” to a new normal because of the global Covid-19 pandemic seem to suggest a fundamental change in economic, business model and social mores. We should remain skeptical of such claims. 

The same thing was said in the aftermath of the Great Recession of 2008, and it is not clear any new normal persisted. 

That is not to deny the continuing force of underlying and pre-existing trends. Basically, what was growing before the Great Recession continued to grow afterwards; what was declining also continued with the same long-term trend. Looking only at consumer loan delinquencies, they had been trending upwards for two years prior to the Great Recession, for example. 

source: Marquette Associates

So was the 2008 global Great Recession a structural break, a point in time when fundamental patterns change because business models are broken? That now appears questionable. 

Back in 2009, McKinsey consultants said “in most of the recessions of the past 40 years, demand caught up with capacity and growth returned in 10 to 18 months. This recession feels different.” Looking at mortgage defaults, maybe even the Great Recession did not change the underlying long-term trend. 

There was a spike in first-mortgage defaults, with a peak in the immediate aftermath of the recession. But rates returned to pre-recession levels after a few years. 

source: Standard and Poors

It might be incontestable that “the Great Recession accelerated a number of long-term trends and arrested the development of others,” professors from Wharton School and UCLA argued. But they also noted, about a decade after the event, that “at this point most of the indicators pretty much resemble what they were before.” 

Some have argued that social impact has been long-lasting. The problem is that it also is possible to argue those trends were underway before and after the Great Recession, and are independent of the temporary impact of that event. 

That is similar to the “weather caused revenue shortfalls” excuse one sometimes hears from public companies explaining why revenue fell short of expectations. That might be a plausible short-term explanation of consumer behavior, but also often masks other longer-term trends a firm faces, or management failures. 

Did attitudes toward debt and leverage really change after 2008, and continue to the present? Some would say the evidence points the other way: that there was no long-term change. Sure, there was a four-year impact before the prior trend reasserted itself. But the long-term trend remained in place. 

source: Federal Reserve

The caution is that present calls that we have entered a “new normal” might be wrong. There should be some impact for a few years afterwards. That happened in the wake of the 2008 Great Recession as well. But underlying trends reasserted themselves after about four years.

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. 

Are Recession Driven Product Substitutions Permanent?

Whatever else one might say about it, a recession is a prime opportunity for product substitution whose immediate benefit might only be seen to be “saving money,” but which then might create a satisfying habit that leads to a permanent shift in demand, not just a temporary change of provider or service level.

In the U.S. market, the issue is whether the millions of customers who have opted for prepaid mobility will keep those plans even after the recession has past. Virtually nobody thinks consumers who have cut the landline voice cord in favor of mobility are likely to reverse course.

The poster child for substitution of mobile broadband for fixed broadband, for example,  is Austria, where  almost all broadband net adds have over the last year or two been mobile connections, rather than fixed connections.

And though the market in Austria and in the United States appear to have different structural characteristics, the danger of product substitution is amply highlighted in the Austrian market, where aggressive mobile providers, high fixed broadband prices and relatively low value of entertainment video create a sort of perfect storm for mobile broadband substitution.

And though it is not certain, past recessions were linked with, though perhaps not directly contributors to, the rise of disruptive new players in media or communications ecosystems.

Google was born in 1998, in the midst of the Asian financial crisis, while Skype was born in 2003, after the dot-com implosion, for example.

Changes in industry structure and the emergence of disruptive new industry leaders will not be ascertainable for some time. But churn is going to be easier to track, as we normally get reasonable trend data from any number of public companies every three months. We largely will have to guess at how product substitution might be occurring.

Some forms of substitution are now so commonplace as to be expected: cable companies and mobile providers gaining voice customers while telcos shed them; telcos gaining video customers while cable companies shed them while online viewing grows.

Other likely product substitutions are less visible. It is not clear there is any appreciable substitution of mobile wireless broadband for fixed broadband. But logic suggests that will become a greater opportunity and danger in several years, when fourth-generation services are more widely available.

Parks Associates research, for example, finds 80 percent of broadband users in key European markets prefer traditional video viewing to online viewing. Depending on how you want to spin it, that is a glass half empty or half full.

“Broadband has transformed video viewing habits in Western Europe, where over 20 percent of broadband households have watched a film or TV program online in the past six months,” say researchers at Parks Associates.

Mobile broadband and mobile broadband modems and dongles (including embedded devices) are growing dramatically. In several major European markets, including Austria, Ireland and Sweden, as many as 15 percent to 30 percent of broadband subscriptions are now over cellular networks, up from nearly zero a year ago, the International Telecommunications Union says.

Think about that for just a moment. From zero, mobile broadband jumps to 15 to 30 percent of total broadband accounts, in a single year.

That represents some mix of additional access accounts supplemental to fixed broadband, and some substitution. But it is significant that the ITU report believes the growth shows “mobile broadband can substitute for light-usage DSL.”

So the logical question is whether mobile broadband is to fixed broadband as mobile voice was to fixed voice.

Analysys Mason notes that one of the key success factors for the rapid take-up of HSPA (3G) has been the introduction of flat-rate pricing with either unlimited usage or very large inclusive data bundles.

So at least in some markets, the recession could be leading some significant number of consumers to trade off their fixed broadband connections in favor of mobile broadband.

The longer-term issue is more important. Once they have learned to live that way, will they continue when the recession ends?

That is the big danger on a number of fronts. And it is a bigger change than simple churn, as important as that is.

If a business customer picks another provider for one or more services, the danger for the original provider is that this particular customer never returns.

If a customer switches from cable to telco or satellite for video, does the cable company ever get that customer back? And if a customer abandons all landline service, does a telco have much of a shot at getting that customer back later?

Those issues are real enough. More challenging though is a fundamental new behavior pattern that changes the size and value of an entire market segment, application or service, not simply the market share various contenders can claim.

Sure, there will be important but temporary effects during the recession. What bears closer scrutiny are permanent changes in end user demand. The recession will provide incentive to try new things. Once that happens, we might see the behavior persist even after the recession-induced driver has passed.

We won’t know precisely how important all that is for some time. What does seem clear is that lots of people are going to try new things, maybe just to save money at first. There is no way all that behavior is going to stop once the recession is a memory.

The New Normal Will Not Last; in 2 to 4 Years, Normal Will Reassert Itself

One hears talk of post-Covid-19 new normal that results in permanent changes in business and consumer behavior. 

But we heard the same analysis in the wake of the 2008 great recession. Permanent slow growth was supposed to be the new normal.  It did not last. 

source: Statista

source: Statista

Some confidently predicted that U.S. firms would never again make as much use of leverage as they had going into 2018.  In fact, trends in use of leverage in financial markets suggest there is nothing permanent about new business attitudes towards financial leverage.  Use of leverage soared, post-great recession, to new levels. 

source: Seeking Alpha

Likewise, many analysts suggested consumer behavior had fundamentally changed as a result of the 2008 recession. Consumers would remain wary of debt, it was suggested. That also proved to be incorrect. To be sure, consumers were more cautious for half a decade, but eventually returned to their old ways. 

source: Marquette Associates

Consumer saving rates grew in the wake of the great recession, but only for perhaps four years. 

source: Federal Reserve Bank

The cruise industry saw price declines in the wake of past recent recessions or event shocks as well, and most expect a slow recovery for cruise line activity in the wake of the pandemic. But other shocks--the internet bubble collapse, the SARS epidemic, the 2008 recession and Costa Concordia disaster of 2012 all led to price weakness. It took about five years for prices to recover. 

source: Market Insider

After the 2008 recession, consumer spending was back up to pre-recession levels. 

source: Bureau of Economic Analysis

To be sure, the recession of 2008 likely accelerated trends that already were happening, but also lead to at least a temporary emphasis on simplicity, thrift and fickle changes in preferences. Green and ethical consumerism would wane, some predicted. None of those trends lasted. 

So despite all the talk of the new normal, we are likely to see a reversion to the mean after a few years. Linear extrapolations from current behavior are likely to be wrong, as they have been wrong in the past. The new normal will not likely last very long. Eventually, we will return mostly to the original normal, with the caveat that all underlying fundamental trends are likely to remain intact.