BrazilThe impact of Covid-19 on the telecom & media industry
The Covid-19 induced economic crisis is having a profound impact on the global economy, as businesses scramble to navigate an ever-changing environment and fall in demand. The telecom and media sectors are among the sectors most impacted. Experts at EY-Parthenon outline how Covid-19 is impacting the two sectors in the short and middle to long term.
Impact on the telecommunications sector
The immediate impact for telecommunication companies will be a reduction in revenue from variable mobile charges due to reduced international roaming and less out-of-home data usage, with spare home broadband network capacity able to deal with demand during the day.
Key opportunities for telecommunication companies lie in the enablement of mass working from home, driving capacity upgrades and hence revenue, and the accelerated transformation of traditional to digital business models across all sectors.
Hosting providers are similarly offered opportunities in this new “digital normal”, such as capitalising on the significant demand increase for hosting capacity as businesses move their workforce to digital, working-from-home models and accelerate the shift to cloud IT.
B2C fixed
Short term
Factors such as remote working, school closures and travel restrictions will result in increased data usage at home, which will drive higher quality broadband connectivity products in the short term as a result.
Accelerated app-based communication will further cannibalise voice calls, offering opportunities to partner with established and new OTT players – sustained long term.
Middle to long term
Potential for upgrades to stick long term as consumers realise value in higher quality broadband connectivity.
Some of the structural changes in remote working will continue post-Covid-19, resulting in continued strong demand for B2C fixed broadband (in particular if similar subsequent crises occur).
B2C mobile
Short term
Net impact is expected to be negative as customers will rely more on fixed broadband
Immediate increase in international calls will not offset the reduction of roaming short term.
Protection from lower usage of mobile data via contract term unless on a pay-as-you-go contract.
Middle to long term
Economic downturn and redundancies may see customers cut their spend and reduce their mobile packages, which would only partially be offset by increased usage.
Longer-term impact will be broadly neutral to positive as spending reverts back to the pre-COVID-19 period; with some impact from less travel possible.
B2B fixed
Short term
Lower use of leased lines, but an increase in traffic flow from connections between data centers to homes driving upgrades.
Winners and losers will have a neutralising effect – insolvencies in the SME space will offset increased demand and capacity upgrades in others (e.g., online retail, cloud services).
Increased demand for support as companies transition to tech-enabled model.
Middle to long term
Continued positive demand from tech-dependent companies is expected.
Increasing number of businesses will focus on digital/online presence and offerings to adapt to change in customer behaviour.
Acceleration of demand for Unified Communications (UC) solutions including complete migration from traditional to VoIP.
B2B mobile
Short term
Similar to B2B fixed, some companies are expected to increase spend on B2B mobile for their employees to support remote working, while others will cut down spending.
Roaming revenue expected to drop due to travel restrictions. No significant changes in other revenue as mostly contracted.
Middle to long term
Potential structural shift to remote working may see employers increase their work mobile spend, but the impact is expected to be limited.
Some mobile workloads are expected to be replaced by UC solutions benefitting from a fixed connectivity environment.
Hosting services
Short term
An increase in capacity demands as companies grow adoption of the collaboration tools and UC required for effective at-home working.
Middle to long term
Increased demand for server capacity will be sustained as companies grow in adoption of digital and UC solutions and remote working.
Impact on the media sector
The impact of Covid-19 is likely to vary significantly between different industry sub-sectors; with sub-sectors such as e-sports and gaming seeing huge opportunities (although cancelled events might also affect e-sports leagues) while others (e.g., B2B events, cinema and theatre) face existential challenges.
Location- and event-based entertainment (sport, film, production) face huge short-term challenges, but high demand and a resilient sector means bounce back should be possible.
TV and advertising are expected to weather the storm; TV viewing should remain high despite scheduling gaps; advertising is likely to experience significant budget cuts driving cancellations of productions and thus re-runs; and streamers benefitting substantially but a key concern will be holding on to new users due to the logistical challenges to create content.
B2B events
Short term
Many trade shows were canceled rather than rescheduled.
Attendees expect a replacement of in-person events with digital ones to sustain industry learning.
Middle to long term
Exhibitors and attendees of B2B events may develop an expectation of more digital events and learning, increasing opportunity for diversification of revenue streams.
Accelerated consolidation of smaller players who will materially suffer from canceled events.
Sport, film and production
Short term
Sporting events to be rescheduled or canceled, with high loss of revenues, until players can be cleared to play without contagion risk.
Severe short-term disruption of cinema operations due to social distancing, may drive widespread insolvency and potential consolidation – with impact proportional to length of lockdown.
Production paused due to social distancing unless it can be done “at-home” (talk shows), potential movie releases on a pay-per-view basis.
Middle to long term
Auctions for future rights may be impacted as broadcasters pass on current losses to sports rights holders.
Ticket holder safety at stadiums a major focus.
Severe impact to sports if lockdown lasts long enough to force abandoning of seasons (e.g., Premier League, Champions League) rather than rescheduling.
Studios may further utilise new movie release options such as pay-per-view.
Step-change in technology adoption and advancement of remote production and collaboration solutions.
TV and advertising
Short term
Despite increased viewership, industry will experience significant advertising budget cuts.
Countermeasures will include cancellation of productions and re-runs of already amortized program inventory.
Increased consumption of news content.
Middle to long term
Accelerated shift of viewing towards streaming.
Operating models to evolve to incorporate more flexibility and agility in ways of operating.
Advertising budgets expected to rebound to pre-crisis levels in the mid-term.
E-sports and gaming
Short term
Traditional sports leagues will increasingly use video games to maintain engagement with their audiences.
Cancellation of events will likely hit the P&L of e-sport leagues due to high dependency on physical events and missing licensing of TV rights.
Middle to long term
Step-change to have more cross-over between sport and e-sports.
Gaming industry will need to consider ways to maintain new adopters of their products.
Supporting technology and B2B information
Short term
Supporting tech impact depends on performance of customers; e.g., remote production is likely to benefit while broadcasters for sport likely to be hit.
B2B info largely protected due to long contract lengths
Middle to long term
Supporting tech has an opportunity to help clients step-change as tech adoption increases, but impacted by performance of customer base.
B2B info potentially impacted by low renewals in industries that are struggling.
