We are working, socializing, learning, and shopping differently compared with the way we did a month ago: most people in Europe are now at home. But we’re still going on, and the one thing that keeps us going is access to the internet. Collectively we need to make sure that access remains resilient and affordable to all.
There are countless examples of companies offering premium digital services free to help individuals and other companies carry on with their lives. Communications service providers (CSPs) are also relaxing their policies and removing or reducing restrictions on internet speed or data allowances.
Unfortunately, some of these benefactors will eventually not be able to afford to be magnanimous for a prolonged period, and their generosity will end. But Europe needs to preserve the quality and affordability of its internet infrastructure. Will CSPs cope on their own?
Telcos provide vital service
Before the spread of COVID-19, an estimated 5% of European employees worked from home permanently, with another 8% working from home occasionally, according to EU studies of 2018. But with governments forced to lock down entire countries and cities, the number of people who are now permanently living indoors has risen exponentially, and with that, the amount of traffic generated by people working, socializing, and entertaining themselves at home also grows exponentially.
Telecoms operators are now more than ever playing a critical role in supporting society during the crisis. As an example, Vodafone reported demand rising by as much as 50% in some countries.
In a joint statement, Spanish providers urged people to be responsible in their use of network resources because “in general terms, traffic through IP networks has experienced increases of nearly 40% while mobile use has increased by about 50% in voice and 25% in data.” Traffic from applications such as Skype and Webex has quadrupled, while use of social media such as Instagram has increased fivefold. In their statement, Telefónica, Vodafone, Orange, MásMóvil, and Euskaltel asked people to be rational in the way they use the internet, recommending they use entertainment services during off-peak hours (e.g., between 8 p.m. and 8 a.m.) and limit the use of nonessential features such as video during phone calls. At the same time, Spanish CSPs promise that they will increase the capacity and redundancy of some network elements, but this might take a while. Meanwhile, in France, the 5G spectrum auction was delayed because of the pandemic, meaning that the technology that is designed to give a large amount of much-needed extra capacity will not be available.
But Telcos don’t possess unlimited resources
As happened in previous economic crises, such as the 2008–09 economic and financial crisis, telecoms operators are expected to lose part of their revenue. This time is different: the financial and economic crises that COVID-19 will bring are preceded by a health crisis that is forcing millions of people to stay at home in front of their screens, trying to carry on with every aspect of their daily lives.
Every country and every operator will be affected differently: mobile might suffer the most, because its contract customers are often in shorter commitments and can reduce their spending fairly rapidly. Fixed line and broadband is, in general, more resilient, while prepaid mobile revenues are very volatile, and revenue from entertainment bundles might increase. But overall, the effect of the COVID-19 pandemic will be negative for telecoms revenue, first because of people being forced to stay at home, then because of the ensuing economic crises. The consequence is that the availability of cash to be pumped into the network will be reduced.
If people lose their jobs and companies go bankrupt, telecoms cash flow will also be compromised by rising levels of bad debt, while financially unaffected customers might decide to reduce telecoms spending as a precaution in case things get worse.
Debt levels of European telecoms operators are high, and their ability to increase borrowing is limited, given that they were already selling off assets to reduce their level of indebtedness. A precarious financial positioning is paired with a surge of internet traffic to support essential services, an unprecedented situation.
Public support for strategic infrastructure is needed
The region will not be able to cope indefinitely with the spikes in demand. Today networks are over-dimensioned to work effectively with a variety of peak demand throughout the day, and thus far, the quality of the infrastructure is largely unaffected. But with (expected) diminishing revenue, it is hard to think how European telcos can afford to support growing demand. Public intervention will be needed.
Some measures put in place to foster price-based competition, such as portability, have already been halted in Spain. Blocking number portability is intended to avoid human-to-human contact, but it is also clear that the measure will ease off competition, which sometimes turns irrational in an environment of declining revenue.
But authorities should think about measures to keep the telecoms utilities in good health. Provide vouchers for people who cannot afford services, remove restrictions on network sharing, relax planning permission for new sites, and make available direct capital injections for networks. This will all help the preservation of the new backbone of society.