The COVID-19 impact on telecom business revenues hasn’t been as bad as financial analysts at MoffettNathanson expected it to be. But the worst is yet to come, according to the researchers.
While U.S. gross domestic product dropped at a 32.9% annualized run rate between the first and second quarters of 2020, U.S. telecom wireline business revenues dropped at only a 0.4% annualized rate during the same timeframe, the researchers explain in a new research note.
“[S]ociety has relied heavily on telecom services to remain economically productive, educated and entertained, helping to insulate service providers’ results from the broader turmoil,” the researchers observe.
The researchers argue, however, that “we don’t think results in the first half of 2020 are illustrative of the full impact of the COVID crisis.”
COVID-19 Telecom Business Revenues
The researchers cite several reasons why they don’t believe we have yet to feel the full impact of the COVID-19-driven recession on telecom business revenues.
They note, for example, that telecom providers saw a spike in voice revenues and collaboration revenues as employees worked from home. Collaboration offerings may remain more popular than they were before COVID-19 but usage will decline from Q2 levels as employees return to offices, the researchers predict.
Another reason telecom business revenues are likely to decline is that “we have yet to observe the broadly anticipated wave of small business closures,” according to MoffettNathanson. The researchers expect to see this wave occur in Q3 and Q4.
The COVID-19 recession has had a greater impact on cable companies and other non-traditional providers in comparison with traditional telecom providers because companies are putting long-term planning on hold, which tends to benefit traditional suppliers, according to the research note.
Cable company telecom business revenues also skew toward small and medium size businesses, which are likely to be most severely impacted by COVID-19.
The researchers note, for example, that AT&T, CenturyLink, and Verizon get no more than 17% of business revenue from SMBs, but Comcast, Charter and Altice USA all get at least 60% of business revenues from SMBs.
For 2020 overall, the MoffettNathanson researchers expect to see telecom wireline business revenues decline by less than the 5% to 7% that the researchers initially forecast.
They also note that “commercial wireline growth has tended to lag that of the economy by a quarter or so” and therefore Q3 telecom business revenues are likely to see a decrease.