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COVID-19 unlikely to slowdown 5G rollout – analyst

Credit rating agency Fitch Ratings has stated it does not believe the COVID-19 outbreak will have a material impact on the rollout of 5G networks across the US.

Although the US was one of the latter nations to feel the full force of the coronavirus, it is now accelerating through the nation. Despite there being very significant impacts to the economy on the whole, the Dow Jones index is down 25% since mid-February, Fitch Ratings seems to believe the telco space will be able to resist the worst impact.

“We believe the telecom sector has a lower level of risk to economic pressures as a result of the coronavirus, particularly when compared with other sectors, such as airlines, non-food retail, restaurants, lodging and leisure, automotive, and media,” the firm said in a research note.

“The lower risk is due to the integral nature of wireless services in consumers’ day-to-day lives with predictable recurring payments supported by low post-paid churn levels. As such, wireless phone services have a high position in consumer priority payments.”

For AT&T and Verizon, companies with stronger balance sheets according to Fitch Ratings, the impact to free cash flow (FCF) would be limited, though the rest of the industry should also be in a healthy position. Dividend cuts would be a last option, but the analysts believe this is a long-shot as the industry should be in a strong-enough position to continue strategic investments in 5G networks and related fibre spending.

The theory here, which holds sound for the moment, is that connectivity contracts are likely to be one of the last bills which will be trimmed back on. With more people facing a lockdown, the money flowing into the telco industry should be sustained (if not slightly increase) as the internet becomes the lifeline of social lives and remote working.

What is worth noting is that enterprise revenues would have been factored into ROI calculations over the long-term. As it stands, funds for 5G pilots and projects are likely to have been diverted elsewhere by enterprise organisations, though this only becomes a material problem for the industry if severity of COVID-19 persists as it is today, with the world under strict lockdown.

Another risk worth bearing in mind would be a recession. With unemployment rising rapidly in the US, subscriber churn could increase and defaults on device financing plans could rise. Some lower-income customers may convert post-paid accounts into pre-paid/lifeline service in an effort to cut costs. All of these factors would result in lower revenues for the industry, with T-Mobile more exposed than others, though it does seem in balance, the prospects are more encouraging.

Finch Ratings is taking a long-term view on the industry, and assuming the world returns to relative normality, 5G should be able to continue on track. But this assessment is incredibly limited, only looking at the financial capabilities of the telcos. What the team does not consider are external factors.

Employees could be forced to remain at home due to illness, engineers might have to be redirected to prioritise other projects such as improving the resilience of 4G networks or supply chains might be impacted. From a financial perspective, the 5G rollout should continue as forecasted, but there are many moving parts which are very sensitive to the spanners flying all over the place.

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One comment

  1. Avatar Tom Jones 09/04/2020 @ 3:39 am

    Anyone who really believes that COVID-19 outbreak will have not have a material impact on the rollout of 5G networks simply knows nothing about the telecom industry. I cannot believe this “story” exists.

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