Telecom Industry And The Rising Bandwidth Pressure Amid The Coronavirus Outbreak

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Telecom Industry And The Rising Bandwidth Pressure Amid The Coronavirus Outbreak

 Telecom Industry And The Rising Bandwidth Pressure Amid The Coronavirus Outbreak

Summary

  • Telecom industry
  • Industry prior to Covid and during the Covid, rapid technological changes expected after Covid
  • The companies have been making all efforts to tackle the demand surge
  • Stock performances of major British Telecom players VOD, BT.A

The Utilitity sector, specifically the Telecom sector had been put to the test during the lockdown induced by the novel coronavirus. The data services have largely held up and helped people to stay connected with their relatives, to work, to learn and facilitate home entertainment as well.

Before the pandemic washed up the shores of the UK, the Regulator of the telecommunication sector, Ofcom announced ambitious plans to fibre up the countryside areas across the nation, in early January this year. The aim of this initiative by the telecom authority was to bring the UK at par with the several European and Asian countries with regards to greater penetration of high-speed fibre broadband connectivity. The UK aims to connect all its households through fibre network by 2025 as envisioned by the British Prime Minister, Boris Johnson. The plan originally called for laying of thousands of kilometres of high-speed fibre optic cables. This meant huge capital expenditure. The government already had made a proposal to provide £5 billion worth of subsidy to build this network infrastructure.

Technology and growing reliance on it

The technology infrastructure has played a key role in the unprecedented prevalent crisis induced by the novel coronavirus. With work from home becoming a ubiquitous phenomenon in the service industry, the need and reliance on the network providers have gone up manifolds. The online supermarkets dealing in the essentials were hugely reliant on the online delivery model during the peak of the novel coronavirus. In fact, they went on a hiring spree to cater to the huge surge in demand during the peak of the pandemic.

Most of the domestic businesses in the UK’s economy-focused upon reducing costs and ensuring liquidity. Another important thing they focused on was how to finetune their existing business models to the online platforms. This meant migrating from existing systems to online customer acquisition and service model. Even the schools across the world have used the internet to offer online classes. According to the Office of National Statistics (ONS) report, nearly 90 per cent people have used the internet every day in 2019. We cannot even imagine such a surge in demand for the internet in the present scenario.

According to the Ofcom’s Home Broadband Performance Report, the demand for the data services was pushed up by home entertainment, online classes, and remote working is a regular feature during the lockdown. Some broadband providers have reported an increase in daily throughput by 60 per cent. In addition, the data speeds in the rural areas are not much behind than those offered in the urban areas.

The global telecom industry is migrating towards 5G network ,and so does the UK. Huawei, the Chinese telecom giant, is known for its low-cost network infrastructure equipment. However, the company has faced major backlash on the backdrop of US-China trade war in recent times. Moreover, there are certain controversies with respect to 5G, making the headlines in the mainstream media. In a bizarre incident, in some parts of the UK, the network masts had been vandalised because people believed that 5G network bolsters the spread of the novel coronavirus.

The UK’ telecom industry, which is highly regulated majorly comprises of Vodafone Group, BT Group, EE, O2, Virgin Media and few others. As a standard practice across the world, a lot of network infrastructure is shared amongst the telecom players and in UK as well.

During the lockdown, online traffic has increased manifolds, which sometimes leads to poor service. Recently, Vodafone UK received a lot of complaints about a social media platform regarding poor call quality. The company later regretted the inconvenience caused to nearly 18 million customers in the UK. The telecom operators use each other’s network infrastructure, which sometimes leads to interconnect issues. These are temporary in nature and are triggered by unprecedented traffic.

Major players chalk out plan tackle the huge surge in demand

To tackle the huge surge in demand of the data services, the UK Telecom majors are chalking out various strategies. BT Group Plc (LON: BT.A), the old workhorse of the British telecom industry, is looking forward to investing £12 billion to fibre up 20 million homes in the United Kingdom by the end of this year (2020). BT group suspended final dividend worth £1 billion for last year to bolster 5G and broadband investment. The company’s operating net cash inflow was up by 47 per cent Year on Year to GBP 6,271 million in the fiscal year 2020.

Virgin Media and O2 have joined forces to invest £10 billion for high-speed broadband and 5G networks.

BT Group Plc’s shares were trading at GBX 112.48 on 12th June 2020 (before the market close at 8:37 AM GMT), which was down by 1.33 per cent against the previous day closing price. The beta of the company stood at 0.92, indicating similar volatility in comparison to the benchmark index. The annual dividend yield stood at 12.78 per cent.

FTSE 100 listed telecommunication company Vodafone Group Plc (LON: VOD) provides voice and data services. Vodafone Group has performed well in the fiscal year 2020. The Group has witnessed a substantial increase in data volumes during the unprecedented crisis. The Group’s revenue was up by 3 per cent Year on Year to EUR 45 billion for the fiscal year 2020. Broadband users in Europe have increased to 25 million in the fiscal year 2020. Moreover, the Group declared a total dividend per share of 9 euro cents for 2020.

Vodafone Group Plc’s shares were trading at GBX 122.92 on 12th June 2020 (before the market close at 8:38 AM GMT), which was down by 2.40 per cent against the previous day closing price. The beta of the company stood at 1.05, indicating slightly higher volatility in comparison to the benchmark index. The annual dividend yield stood at 5.84 per cent.

Comparative chart: BT.A vs VOD

(Source: Thomson Reuters)

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