It is still early days to fully size the impact of the current pandemic on the global economy, not to mention IoT. Nonetheless, what is important to note for both the enterprise and consumer is that IoT is not just about connecting devices, it is about using and analysing the data these devices collect to achieve an outcome.

By no means do we think we have all the answers; the degree of uncertainty is still high– from the overall economic impact, to changes in consumer spend, and how enterprises in different verticals respond to the ‘new normal’. Rather, our analysis is a reflection on how the market has responded to Covid-19 so far and how we see (at this time) the future, recognising that, for both the enterprise and consumer, IoT is not just about connecting devices but about using and analysing the data these devices collect to achieve an outcome. And, of course, we will continue to monitor market developments, plough through quarterly reports, talk with the ecosystem players to to try to gauge where the market is moving.

With that in mind, our views and analysis are guided by some top-level assumptions that underpin our latest forecast thinking.

Recession looms
Based on IMF data, global GDP will contract by 3 per cent and grow by 5.8 per cent in 2021. Whether or not these predictions still hold true is up for debate. Regardless, recent news suggests that the current crisis is far worse than the 2007-2008 financial crisis, pointing towards a U-shaped recovery in economic output, rather than the hoped for V-shaped fast recovery. As such, we look at any IoT market impact from a short-term and long-term perspective.

The ‘new normal’
On the demand side, the picture isn’t rosy. The Manufacturing PMI (Purchasing Manager Index), measuring the health of the economy, has nose-dived. This reflects low business confidence. Consumer confidence indexes have plummeted too, due to growth in unemployment and limited spending power. Almost overnight a large proportion of employees moved to a remote working environment, which increased enterprises’ urge to support their workers via cloud based software applications.  On the supply side, production has been impacted as manufacturers had to deal with supply chain disruptions, often looking to find alternative providers. China’s rapid re-opening has helped remedy some of these issues. But, in the longer-term, enterprises will look to build yet more resilience into their supply chains to be able to ‘track and trace’ and have visibility of their asset. Potentially, they will be also looking for a greater geographic spread of suppliers, and even at the potential for re-shoring – building greenfield operation to support in-country production.

The impact on IoT
Government measures put in place, related to social distancing, impacted travel and site visit restrictions, holding back services and project installations across all sectors. They have also underlined the importance of “out-of-the-box” services that just work and can be easily deployed without specialist present. We’ve observed this trend on the consumer side, especially with regards to home security – self installed security cameras are on the rise. Granted, when it comes to enterprises, customised solutions are the preferred option as our survey shows, but this crisis might shift the status quo. Companies to ensure business continuity have been using software tools,

[1] [2] [3]But what is the market actually saying? On the back of the launch of the 5G IoT for Manufacturing [4] Forum we ran a short survey to measure companies’ sentiment toward the impact of Covid-19 on their operations and ability to conduct BAU/provide services.

Below are some of the key findings:

Increase in automation, use of advanced analytics and increase in agility as a result of COVID-19
Expectation that COVID-19 will increase customer demand for 5G while potentially shifting timelines
Manufacturers see impact due to government measures – social distancing but overall, they see a rebound in the long term

The major downsides
We expect connected vehicles to be the most impacted sector across consumer IoT. Even before Covid-19 stopped cars rolling off the production line, new car sales had been slowing. This, combined with weak consumer demand, results in our expectations that connected vehicle growth will be less than 2 per cent in 2020 – compared to previous double-digit growth. The retail sector, for its part, will be forever changed, as the move to online channels accelerates. It’s important to recognise that a large proportion of retail stores are SMEs, many of which will struggle to survive the current crisis. Those that do, will most likely have to embrace digitalisation. Smart city projects are also currently put on hold with cities having to reprioritise their budgets to focus on citizen safety. Interestingly, the crisis has highlighted the role drones and thermal cameras can play to monitor citizens or robots to sanitise the streets.

The hopeful upside
The current crisis has proven that companies that have already embarked on the digital transformation journey are faring much better. According to our 2019 IoT Enterprise Survey, 65 per cent of companies deployed IoT as part of their digital transformation agenda. Some of the planned deployments, especially for SMEs, will either never happen or be put on hold. But this isn’t true across the board. Smart health, including prescribed and non-prescribed medical devices, will grow even faster than we would have expected just six months ago. The current crisis has highlighted that globally, public health systems are struggling to cope; when the dust settles, and perhaps even ahead of a vaccine, post-mortems of where failings were made will focus on where technology can help, even if that does mean relaxing regulations. Telemedicine and remote patient monitoring are two areas that will be prioritised in developed nations. Similarly, smart buildings as a sector will change. Working from home practices are here to stay and this will have an impact on office space requirements, but at the same time health and safety measures will have to be put in place to ensure those who return to the workplace are not placed at risk.

What does it mean?
When all is said and done, after analysis of market trends at a global level, our forecast is seemingly unchanged: 24 billion IoT connections in 2025 vs 24.6 billion that we forecast at the end of 2019. As surprising as it might seem, we foresee that the immediate downturn will result in longer-term IoT adoption as enterprises will look to achieve business benefits (cost reduction, increase in revenue etc).

As history has shown, every crisis leaves a long-lasting legacy in terms of faster innovation and a ‘new normal’. Covid-19 will accelerate the move to digital and companies adopting IoT, AI/ML and 5G amongst other technologies to drive digital transformation.

– Sylwia Kechiche – principal analyst, IoT – GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/wp-content/uploads/2020/05/GSMAi.tif
[2] https://www.mobileworldlive.com/wp-content/uploads/2020/05/GSMAi-1.tif
[3] https://www.mobileworldlive.com/wp-content/uploads/2020/05/GSMAi2-1.jpg
[4] https://www.gsma.com/iot/manufacturing/

In a matter of weeks the world has changed dramatically. Governments have mandated closures of educational institutions, leisure venues and offices to control a novel virus, save lives and protect healthcare systems. Millions of people have had to adapt their social and professional interactions, leaning heavily on telecoms networks to contact family, friends and colleagues. Overall internet traffic is up, peak data hours have shifted, voice call volumes have rebounded and certain videoconferencing solutions have become almost ubiquitous.

In a recent blog [1], we discussed how mobile operators are leveraging their networks and businesses to support customers and societies struggling during the pandemic. Laudable efforts include expanding voice and data allowances (for example, Telefonica and Veon), and providing free access to education and/or healthcare services (Airtel Uganda and Dialog Sri Lanka).

Telecoms regulators, too, have understood the importance of fast and reliable broadband, and acted accordingly. Several authorities, including those in the Republic of Ireland and South Africa, have granted additional (temporary) spectrum to help operators boost capacity, while Kenya fast-tracked approval of Alphabet’s Loon project. This will soon allow for the commercial deployment of internet-enabled balloons in partnership with Telkom Kenya, delivering 4G coverage to remote, previously unserved communities.

BEREC and various regulators are monitoring changes to online behaviours and network load, and Ofcom stated it is taking a “pragmatic” approach to balancing the need to guarantee citizens remain connected with the enforcement of consumer protection rules.

Moreover, governments are taking unprecedented fiscal and economic measures to support the telecoms industry and ensure affordability does not become a (greater) barrier for consumers. Commendable actions have been designed to reduce sector-specific taxes, stimulate investment and enable the use of mobile money services (see chart, below, click to enlarge).

[2]

Nevertheless, the crisis has exposed a degree of vulnerability. The EU moved quickly to request streaming platforms including Netflix and YouTube reduce their video quality to prevent network congestion. Large, densely populated cities remain Covid-19 (coronavirus) hotspots, but even a broadband penetration rate of more than 90 per cent can still leave tens of thousands of individuals without a decent and dependable internet service.

In rural areas, where the harm from poor connectivity can be more acute, the corresponding percentage figure is typically far lower.

Policy levers post-coronavirus: what should come next?
During the pandemic, telecoms infrastructure has been crucial to enabling the continued operation of critical government functions and provision of vital information to the public. Policymakers have been agile, but must redouble support for the industry once normality resumes, particularly given the supply chain disruptions and financial implications of retail store closures and plunging roaming revenue. This does not mean discarding well-established regulatory principles, but there is impetus for a renewed (symbiotic) relationship to emerge, in which pragmatism carries through.

Use the telecoms sector for GDP growth
Digitisation has been a mitigating factor in how society has handled the impacts of the outbreak, however, with several countries already entering recession, operators must be emboldened to invest in strengthening networks as the pandemic retreats. For instance, the Chinese government is urging mobile operators to ramp 5G investment programmes, considering that next-generation networks can be a pivotal growth engine to catalyse innovation across verticals, including autonomous vehicles. In addition, the Chilean regulator updated antenna regulations to drive 5G infrastructure deployment by reducing permit approval times. Policymakers should also explore how digital technologies could support efforts to effect a green economic recovery by underpinning seamless remote working and learning, powering low-carbon smart cities and helping industries become more productive and energy efficient.

Expedite assignments of 5G spectrum
While several countries have postponed 5G spectrum auctions, New Zealand announced direct, fixed price assignments in the 3.5GHz band. The allocation is for an interim period until November 2022, but it means all three main operators now have 60MHz of C-band spectrum and can therefore accelerate 5G deployments and the commercialisation of new use cases. Encouragingly, Finland is maintaining its 5G auction schedule, with the process due to occur in June. Other European markets should use this as an example and finalise dates and rules for awards to provide certainty and keep pace with pioneers like South Korea and the US. Further decisions on C-band spectrum in New Zealand and elsewhere need to recognise the capex commitments operators are making now for 5G rollouts.

Support operators targeting rural areas
The crisis has triggered a greater disaggregation of the labour force and seen a larger share of economic activity conducted from a study or dining room. With remote working set to be the norm for office workers for some time, policymakers must maintain focus on extending connectivity beyond urban centres. Networks have weathered the storm pretty well, but incentivising private sector investment will be paramount. Policymakers must embrace ambitious strategies to expand high-speed broadband services to the underserved by addressing bottlenecks to capex and rapidly disbursing public funding without encroaching on state aid rules. These challenges may bolster the case for network sharing, such the UK’s Shared Rural Network, to create synergies and promote mobile broadband investment in the most rural geographies, while moderating competition concerns.

Focus on unserved communities
Connectivity is a foundational aspect of modern life, with an importance that stretches beyond entertainment or social media. Policymakers should remain conscious for the scope of this crisis to exacerbate the inequalities between those who are connected and those who are not. Millions of people either live beyond the reach of mobile broadband networks (3G or higher) or they are covered but do not have an active connection. Consequently, these individuals are facing Covid-19 without the information channels and communications tools that many in developed markets have only just come to appreciate. Addressing coverage and usage gaps by guaranteeing service availability must be at the top of the regulatory agenda. Hastening reductions in the digital divide will help markets rebuild and new businesses thrive, supporting future economic repair and value creation.

Outlook
Though restaurants, shops and schools are beginning to reopen, the virus will leave its mark at all levels of society.

As countries look forward, policymakers have the opportunity to harness the potential of telecoms networks and new technologies such as 5G, IoT and AI to drive economic regeneration and resilience. Regulators, while making sure markets are competitive, must be pragmatic in their mindset and prioritise collaboration with operators to break down stubborn barriers to investment. High-quality internet access for all will be central to achieving inclusive economies, inspiring innovation and ensuring governments have the ability to tackle future crises more quickly and effectively.

– James Robinson – lead analyst, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/blog/intelligence-brief-how-are-operators-supporting-covid-19-relief-efforts/
[2] https://www.mobileworldlive.com/wp-content/uploads/2020/05/GSMAi_Regulator_Covid19_responses.jpg

Over the past few years, we’ve been ramping our coverage of enterprise services as a core component of the GSMA Intelligence content agenda. I probably don’t need to tell you why.

As a part of that focus, we kicked off a series of reports earlier this year to look at enterprise requirements in a 5G world. We started by looking at what enterprises will need from 5G services. But we then turned to a less-discussed topic, what operators will need to tap these enterprise 5G use cases [1]. As you’d expect, we talked to a bunch of executives at operators around the world to test our theories and build an understanding of operator strategies. And, as you’d expect, the result was confirmation of some commonly-held expectations alongside the discovery of clearly divergent market views.

The stuff we know
Last week, our good friends at Mobile World Live wrote up [2] the latest instalment of our research on this topic. The top-line message, that standalone (SA) 5G is key to delivering on enterprise requirements, falls into the category of confirming existing beliefs. Whether it’s via slicing, massive IoT connectivity, or low-latency communications, the reality is that many enterprise-critical 5G capabilities will require SA. Combined with an interest in tapping digital transformation demands, this is why we see more than 70 per cent of operators highlight plans for SA deployment [3] within the next three years.

And that “interest in tapping digital transformation demands?” File that, as well, under confirmed expectations. Every operator we talked with cited B2B services as key to their 5G monetisation plans, some arguing there is no 5G business case without the enterprise.

Neither point might seem particularly insightful. Yet, both are important reminders: SA and a push on enterprise services will define operator 5G strategies for years to come. They will set the context for future service and network innovations. Ultimately, however, the real question we set out to answer was less about stuff we know and more about stuff we don’t. Specifically, what operators will need to do in addition to launching SA if they want to leverage 5G into B2B success.

The stuff we don’t know
It’s unfair to suggest that we don’t know what operators need to do in pursuit of B2B revenues beyond simply deploying SA.

Those who plan to target vertical industries will need ramp their vertical-specific profile, integration assets, and go-to-market capabilities. Those without a vertical market focus will need to loudly message the broader value of 5G to enterprises, while rolling out new services attractive to enterprises of all shapes and sizes, for example video surveillance, AR/VR-based training, and asset monitoring. And, of course, new network capabilities like edge networking and slicing will follow.

But, if SA is about helping operators meet specific enterprise service requirements, it will have implications for the way in which services are consumed. After all, any enterprise paying a premium for 5G based on the promise of service performance guarantees will want to know the performance they are paying for has actually been delivered. A key question around SA monetisation, then, is whether operators are ready to provide this type of performance visibility.

Are operators ready?
As with so many things in life, the answer to whether or not operators are ready to prove they’re meeting promised 5G service level agreements (SLAs) is an unsatisfying maybe.

On the one hand, operators have been successfully selling into the enterprise for years and SLAs have played a part in those sales. For the most part, those SLAs haven’t been particularly granular, based on metrics like coverage and availability. This is a far cry from the performance characteristics and metrics which are supposed to make 5G an enterprise game-changer. The suggestion, then, is today’s SLAs will need to evolve.

Here, the good news is that some operators clearly understand this: about half the operators we talked with noted they would need to be more granular with 5G-based SLAs than they have been in the past, exposing metrics like latency and bandwidth on a real-time basis, potentially via direct integration into enterprise business systems. Unfortunately, this means the other half doesn’t see any real reason to change the way they provide performance visibility to their enterprise customers in a 5G era.

For operators who plan to treat enterprise 5G at a high level, targeting services with less stringent performance demands, business as usual may suffice. But those hoping to execute on all the performance and digital transformation promises of 5G would do well to heed what one operator told us: “if you plan to charge for SLAs, your customers will want to know that they got what they paid for”.

– Peter Jarich – head of GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://data.gsmaintelligence.com/research/research/research-2020/service-performance-visibility-operator-thinking-on-slas-in-a-5g-world
[2] https://www.mobileworldlive.com/featured-content/top-three/gsmai-flags-enterprise-sa-5g-opportunity/
[3] https://data.gsmaintelligence.com/research/research/research-2019/network-transformation-2020

At the start of the year I explored the outlook for telecoms valuations, following on from what was a mixed year in 2019 for share price performance in the sector. The simple conclusion was near-term sector valuations would be driven more by local market considerations, whether political, regulatory or competitive, rather than any overriding themes. Longer term, a new sector growth story was required for a sustained uplift in valuations and share prices.

The current Covid-19 (coronavirus) pandemic and the material impact on both the global economic outlook and the living and working arrangements for a large proportion of the world mark an appropriate time to revisit this outlook. While telecoms has been front and centre in the Covid-19 discussion in terms of network resilience and the shift to home working, the medium-term outlook, once some degree of normality returns, remains uncertain.

A particular challenge at times of global economic crises is that policy response can drive overall stock market and relative sector performance, with company fundamentals of less relevance. Recent moves by many governments and central banks include payments to workers and large loans to businesses, alongside further interest rate cuts, injecting up to $13 trillion into global financial markets, based on Morgan Stanley figures.

Near-term impact: lessons from Q1
As much of the world is still in lockdown, the initial focus of the Covid-19 impact has been on how operators would maintain their networks and meet surging traffic volumes. Mobile operators have responded by offering free data and services to their users, while also benefitting in some cases from access to additional spectrum resources to manage increased traffic volumes.

As companies and individuals begin to adjust to new realities, and indeed as some countries beginning easing lockdowns, the key question shifts to the impact on financial performance. China was the first country hit by Covid-19 and is one of the first now emerging beyond lockdowns, giving some good evidence of how operators will fare as the situation improves.

First quarter results from the Chinese operators were resilient, with modest service revenue growth (1 per cent) an improvement over the prior year and with March already showing a recovery in new subscriber numbers, driven by 5G adoption. Consensus financial forecasts for the rest of the year are largely unchanged, reflecting optimism of the ongoing uptick in 5G demand. Share prices of the three operators have recovered strongly since market lows in mid-March, even if in relative terms they have underperformed local market indices.

There has been a similar pattern across Asia, with resilient results and operators actually outperforming their local indices, both into the downturn and indeed in the recent stock market recovery period. The situation in the US and Europe has been more mixed, with European operators performing broadly in line with the market since mid-February while delivering overall solid results.

Research by Credit Suisse underlines the general resilience of the telecom sector to date (see chart, below, click to enlarge). The company looked at 102 telecom companies across the world, finding only 10 per cent of them had pulled (id est, withdrawn) guidance for the current year, while only 7 per cent had cut shareholder returns. A number were continuing with, or in some cases even increasing, share repurchase plans.

[1]

How may Covid-19 shape telecoms going forward?
Beyond near-term financial results, Covid-19 may have some longer-lasting impacts on the telecom sector:

Regulation: Covid-19 demonstrated the criticality of connectivity, as well as the ongoing challenge of coverage and service gaps in rural areas. The question then is whether this could lead to a rethink on regulation to encourage investment. For example, with Europe as a whole still a laggard on 5G in global terms, it is not impossible to imagine a loosening of the regulatory shackles. Whether this goes as far as a new wave of consolidation remains to be seen, but new more flexible deployment models focused on maximising coverage and speeds will likely need more flexible policies to support them. Regulators in other regions may be encouraged to address excessive sector-specific taxes and high spectrum charges, which can also limit investments.
Usage and ARPU: networks are likely to see a sustained uplift in usage as the use of digital services in both work and consumer settings increases, with unlimited data plans becoming more attractive. This may be offset for some time by rising unemployment and the likely impact of the global slowdown on enterprise, especially SMEs. However, the net effect leaves sector revenues looking resilient.
Investment levels: 2020 will likely see some reduction in investment plans due to reduced discretionary spend and some practical challenges to installations and supply chains due to the pandemic. However, these effects should be short lived as the enhanced focus on connectivity and consumer appetite for higher speeds drive investment. Operators though will continue to focus on efficiencies, with network sharing and operational digitisation key.
Inflation: longer term, if the wall of money generated by the significant fiscal and monetary stimuli seen in many counties leads to a sustained pick up inflation rates, then operators could well benefit from a degree of pricing power. CPI-linked price increases are already a feature in a number of European markets, and could see more widespread adoption in an inflationary environment
Consumer sentiment: A positive for the sector is a likely improvement in consumer sentiment, having long viewed telecom companies with a certain disdain. This reflects factors such as bill shock, coverage issues and perceived poor customer service. However, the centrality of connectivity to life in lockdown and measures aimed at helping users should improve consumer attitudes. The Orange CEO recently commented: “Orange France has seen a sharp increase in NPS scores in recent weeks, its highest ever”.

Where does this leave sector valuations: opportunities on the horizon
So, has the conclusion on the sector outlook changed since the start of the year, even in the midst of a pandemic? In the short term probably not: telecoms remains relatively defensive and the outlook for revenues and earnings is robust. The speed uplifts of 5G, especially as network coverage expands and device availability improves, could boost consumer appetite for the new service.

In the medium term, as the world fully emerges from lockdowns, the backdrop of new ways of working and potential shifts in the dominant globalisation model does suggest a more interesting opportunity. Shorter supply chains and the re-shoring of manufacturing, as well as general efforts to ensure more overall resilience across industries, will lead to an acceleration in the rate of automation in both manufacturing and services.

In this scenario, 5G could gain added relevance, promising a range of new services to consumers and enterprises just as the demand for new types of interactive consumer entertainment, remote medical consultations and industrial automation (to name just a few) is growing. Leveraging their role as trusted network providers, the scope to integrate new services and gain a greater share of enterprise revenues is clear.

The challenge as ever will be developing new business models and services to meet this opportunity. The good news is that the search for 5G use cases and returns has already prompted operators into action, and customers will prove more receptive to new ideas as they look to adapt to the realities of the post-COVID world.

– David George – head of consulting, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/wp-content/uploads/2020/05/CreditSuisse_earnings_guidance_trackedbyindustry_gsmai.png