Testing the Resilience of European Telecom Services Amid COVID-19

Testing the Resilience of European Telecom Services Amid COVID-19

August 04, 2020 | IT & Telecom

The COVID-19 crisis has reinforced the importance of telecommunication services as an essential utility. With nationwide lockdowns across most European countries, telecom service providers have come under tremendous pressure to ensure the continuity of vital communication services for employees and customers alike.

As the number of employees working from home in Europe witnessed a steep increase, internet service providers witnessed a 35% increase in demand. Developed European countries, however, have the internet infrastructure to withstand such surges of activity. The structural shift to remote working will lead to increased demand for unified communication solutions, colocation and hosting, security services and a shift to VoIP.

Telecom revenue streams were impacted by business closures and cancellations of industry and other major events. While roaming charges are largely curtailed by EU regulations, telecom companies stand to lose some revenue from roaming charges on both voice and data due to the suspension of business travel. Companies may also face risks related to additional capital requirements and investments for network upgrades and resolving bottlenecks to support high network loads.

Has the Plug Been Pulled on 5G?

Due to unclear revenue prospects and cashflow issues, capex spending is expected to take a hit and companies have either shelved or put 5G trials on hold for the short term. The sudden increase in internet usage has prompted service providers to invest more heavily on fiber and other fixed broadband infrastructures at the cost of 5G.

The delay in 5G spectrum auctions in countries such as France, Austria, Portugal and Spain, coupled with the slowdown in the manufacture of 5G-enabled smartphones and network equipment — concentrated in China and South Korea — will further delay roll outs. Despite the delay, the long-term outlook for 5G adoption in Europe remains strong due to the benefits of the technology for business consumers.

The Impact on Procurement

Most telecom companies have 2 to 3 months of reserve inventory for network equipment and components but depend heavily on Chinese original equipment manufacturers. Prolonged supply chain disruptions could prompt European network vendors to source a major portion of their network gear from alternative regional suppliers. Switching suppliers implies a higher procurement cost, especially for 4G and 5G equipment. Telecom operators may be forced to pass on some of the costs to the consumers in the form of higher tariffs, making the procurement of telecom services costlier for businesses.

How Are Telecom Companies Coping?

Companies across Europe are bundling subscriptions for streaming services for free or at discounted rates with data plans while removing data caps for enterprise customers as well as supporting businesses with dedicated cloud services, teleconference and videoconference access, in addition to customized service packages for events such as town halls. Some companies have rescheduled maintenance and product software updates to avoid unwanted disruptions of services. 

Network operators are offering converged services comprising voice, data and content, adopting strategies ranging from content aggregation to content acquisition. They are also working with OTT platforms to stream content at reduced bit rates to reduce network infrastructure load. Major telecom players have contributed to COVID-19 support by sharing anonymized mass data with health officials for group movement analysis and contact tracing.

The Way Forward 

Short-term focus areas for telecom companies include coordinating with regulators to ensure fewer bottlenecks and offering contractual relaxations to customers — including zero rating for hospitals and COVID-19 related applications. Furthermore, telecom companies are enabling an easy transition to remote working for enterprise customers by offering data overages, payment flexibility and creating customized workplace packages by bundling services.

Medium and long-term actions will require companies to consider operational plans to build additional network capabilities and repurpose the existing spectrum. Companies will have to identify areas of negotiation with suppliers and revise prices accordingly and ensure equipment suppliers have contingency plans to mitigate risks arising from a drop in equipment revenues.

Telecom services are expected to remain resilient and show strong post-crisis investment compared to most sectors, supported by paradigm shifts in the working model of businesses and governments emphasizing the adoption of 5G and fibre in stimulus packages.

What’s Your Plan for Procurement and Supply Chain?

As 2020 turns into the year of disruption, GEP’s unparalleled software and strategy solutions  featuring end-to-end digital transformation  ensure your procurement and supply chain organization stays resilient and effective. Find out how GEP can help  talk to us today.

Mike Jette

Vice President, Consulting

Mike is a seasoned consultant with more than 25 years of experience in procurement, supply chain consulting and technology delivery.

At GEP, Mike leads the Telecommunications, Media & Technology (TMT) industry vertical.

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