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Telecoms services: why 2020 might be a challenge

By Connor Freitas

Although 5G is set to become more prolific in 2020, telecoms services are set to struggle with high costs and stiff competition

Telecom services are bracing themselves for a big year. Some analysts believe 2020 will see 5G finally break into the mainstream as major companies invest aggressively in infrastructure. Cellular networks are attempting to retain customers by offering unlimited data plans, smartphone manufacturers are building devices that’ll be compatible with 5G and developers are exploring applications for this technology that simply weren’t possible before.

But, from an investment perspective, are the markets going to give these telecom industry trends a strong signal or a weak reception? Here, we look at some of the main predictions for 2020 and beyond.

Telecom industry news: The latest on 5G

Gartner’s telecom market analysis suggests that revenues from 5G wireless infrastructure is going to explode in the coming years. Researchers have forecast that this figure stood at $2.2bn in 2019 – and that it is set to almost double to $4.2bn in 2020, potentially reaching $6.8bn by 2021. At the same time, the revenues derived from 5G’s predecessors are going to diminish, with 2G and 3G taking the biggest hit. Telecommunications market research indicates 4G is going to continue holding its own for now, with revenues declining slightly from $19.3bn in 2019 to $16.4bn in 2021.

You may find the rather modest revenue forecasts for 5G surprising, but it is worth bearing in mind that it will take time before this technology is ubiquitous. Telecom companies have had to spend tens of billions of dollars in competitive auctions for coveted slots on the 5G spectrum – and industry giants such as AT&T say nationwide coverage in the US is not expected until the middle of 2020 at the earliest. British networks such as Vodafone and EE have been focusing on rolling out their service to towns and cities gradually.

All of this explains figures from Opensignal that suggest that, between August and October 2019, 5G customers were getting an “extremely uneven” experience. Even in South Korea, which is far ahead of the curve in terms of adoption, users were only spending 20 per cent of their time on a 5G connection, with the rest on 4G. This decreased to just 10 per cent in Germany and Switzerland, 6 per cent in Spain and Australia, 4 per cent in the UK and 1 per cent in the US. To cut a long story short, those currently paying for 5G can’t even guarantee they’ll get it all the time.

Telecom industry overview: 2020 predictions

When it comes to forecasts for the telecoms industry market in 2020, there’s been a mixed response from analysts – despite the predictions of growing 5G revenues we mentioned earlier.

Setting out its expectations for the telecoms sector in Europe, the Middle East and Africa, Moody’s says its outlook is negative for the next 12 months. Experts pointed to how intense competition is suppressing prices and eroding profit margins, the high debt levels seen in some companies and the poor performance of telecoms shares in the region during 2019. Carlos Winzer, a senior vice president at Moody’s, said: “Revenue growth is unlikely to materialise in 2020 as the anticipated catalysts, namely more benign regulation and the contribution of 5G, are both absent.”

Moody’s says the outlook is more stable in Asia Pacific, where “modest revenue growth” is expected as companies continue to sell assets and reduce dividends in order to fund higher levels of capital spending. Levels of investment are said to be especially high among telecoms companies in emerging markets, while those in developed economies are managing to curb capital spending thanks to how their networks are already well-established.

"We expect modest 2.5 per cent to 2.7 per cent revenue growth for the Asia Pacific telcos, lagging the average 3.8 per cent GDP,” Moody’s vice president Nidhi Dhruv said.

Contrast this rather unenthusiastic appraisal of telecoms services in Asia Pacific with that of BlackRock, the US-based asset management giant. It says it has uncovered compelling opportunities in India, China and Singapore – and believes stock in these companies could deliver returns that extend beyond the market average. In a report, BlackRock executive Andrew Swan wrote: “We have bought telecom stocks we had not touched in years ... A typical BlackRock Asian equity portfolio exposure to telecom is now in the high single digits.”

Telecoms trends 2020: What to expect

Continuing to look ahead to the coming year for telecom services, the Economist Intelligence Unit eloquently says that investment in 5G and full-fibre broadband “is likely to be a top priority – and a headache – for operators in 2020”. Its report warns that operators may not be able to meet the ambitious targets they have set themselves as they struggle with cashflow issues and grapple with governments and regulators.

Some of the challenges that lie ahead have been perfectly illustrated during the UK’s election campaign, where the Labour Party have proposed partly nationalising infrastructure to deliver free full-fibre broadband to every home. Even though such a policy is by no means set in stone, with the party behind in the polls, it has prompted operators such as TalkTalk to put some of its plans on ice.

Telecommunications market research also indicates that 2020 won’t be the year that 5G becomes commonplace. As the Economist Intelligence Unit report argues: “Although the enterprise sector is eager to embrace 5G, with its promise of new business models and efficiency gains, the appeal for consumers is less clear. Handset prices will be high, while 5G coverage and connectivity speeds will be patchy, given that networks are being rolled out over existing 4G infrastructure. This will result in slow uptake of 5G among consumers, with only early adopters willing to pay a premium for top performance.” Authors believe the technology will only begin to become more widespread as 2020 is drawing to a close.

When it comes to broadband, expect very slow progress in the telecoms services market. It could be argued that many telcos have simply picked the low-hanging fruit, offering fast connectivity in the towns and cities where it was easy to introduce. The challenge could come in delivering high-speed internet to rural areas where the costs are high – especially in developing economies where there is little incentive to invest because prices need to be kept low. The EIU estimates that 2020 will see broadband penetration rise to 18.5 per 100 people, barely nudging the dial from the current level of 18.

Telecom market analysis: Room for optimism?

One of the best ways of assessing the health of the telecom industry market involves canvassing the views of executives in the sector. According to Telecoms.com’s report, which looks back at 2019, 57 per cent of respondents either believe the industry is in good or excellent shape. While 66 per cent say investment in 5G is their priority, 49 per cent say the Internet of Things is their main focus. When it comes to the outlook for 2020, 28 per cent say they are very positive about what lies ahead, compared with 49 per cent who are somewhat positive.

FURTHER READING: 5G explained: How different is it from 4G, and when will it arrive?

FURTHER READING: China launches one of the world's largest 5G networks

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