Investment levels: 2020 will likely see some reduction in investment plans due to reduced discretionary spend and some practical challenges to installations and supply chains due to the pandemic. However, these effects should be short lived as the enhanced focus on connectivity and consumer appetite for higher speeds drive investment. Operators though will continue to focus on efficiencies, with network sharing and operational digitisation key.
Inflation: longer term, if the wall of money generated by the significant fiscal and monetary stimuli seen in many counties leads to a sustained pick up inflation rates, then operators could well benefit from a degree of pricing power. CPI-linked price increases are already a feature in a number of European markets, and could see more widespread adoption in an inflationary environment
Consumer sentiment: A positive for the sector is a likely improvement in consumer sentiment, having long viewed telecom companies with a certain disdain. This reflects factors such as bill shock, coverage issues and perceived poor customer service. However, the centrality of connectivity to life in lockdown and measures aimed at helping users should improve consumer attitudes. The Orange CEO recently commented: “Orange France has seen a sharp increase in NPS scores in recent weeks, its highest ever
So, has the conclusion on the sector outlook changed since the start of the year, even in the midst of a pandemic? In the short term probably not: telecoms remains relatively defensive and the outlook for revenues and earnings is robust. The speed uplifts of 5G, especially as network coverage expands and device availability improves, could boost consumer appetite for the new service.
In the medium term, as the world fully emerges from lockdowns, the backdrop of new ways of working and potential shifts in the dominant globalisation model does suggest a more interesting opportunity. Shorter supply chains and the re-shoring of manufacturing, as well as general efforts to ensure more overall resilience across industries, will lead to an acceleration in the rate of automation in both manufacturing and services.
Earlier this month we wrote an analysis looking at network and service automation and why it was an increasingly important topic, especially in a 5G context.
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