Since the Covid-19 (coronavirus) pandemic started spreading around the globe, most of the attention has been on two areas: health and the economy. One of the main questions over the past few months was what the global economic outlook is looking like in 2020 and beyond, and which sectors of the economy will suffer the least and the most. Some analysts were forecasting moderate growth for telecoms, while others were more conservative in their outlook, predicting a decline, in line with the global GDP.

The first results for Q2 will be published in the coming weeks and give us a great indication on how well the industry is holding up in the crisis. For a bit of clue to what we should expect to see, this is a great chance to take a look at the most recently published results, Q1 2020.

So how much of those fears or hopes have actualised in Q1 2020?
GSMA Intelligence conducted an analysis of the financial performance for 27 biggest telecom groups by revenues based on Q1 2020 reported results, which can be accessed via the latest Global Financial Benchmarking report [1]. The good news is that 17 groups out of 27 reported a year-on-year revenue growth. While the aggregated revenue for all 27 groups declined by 0.5 per cent, the decline was slower than the drop in global GDP, which Fitch Ratings states shrank by 1.7 per cent.

There are several factors regarding why that happened. First of all, group performances were largely influenced by their geographical footprints, as the spread of the virus and severity of the lockdown has varied by region. Secondly, telecom operators are non-cyclical companies, meaning their performance is less volatile in times of recession, due to an ongoing demand in the essential service they provide; connectivity. It is important to mention as well that while Covid-19 was among the factors affecting the financial performance Q1, it was not the only factor, and mainly had an indirect link to financial performance via the economic impact.

The financial results of the first quarter in 2020 demonstrate that (see chart, below, click to enlarge).

While most telecom operators suffered from reduced non-recurring revenue, as the lockdown restrictions meant they had to close down most of their retail outlets, service revenue was up due to an increase in data usage, both on the fixed and mobile side, due to a switch to homeworking an increase in usage of online services for entertainment.

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In our latest Global Financial Benchmarking report we selected three groups with presence in South America, MENA and Africa to deep dive into their financial performance and key strategic changes and assess the regional impact of Covid-19. Looking at the regional differences, Telefonica, which has a vast footprint in South America, reported a negative effect of Covid 19 on its operations in Q1, with revenues declining 5 per cent, impacting profitability. Enterprise clients affected by the pandemic, and declines in prepaid, roaming and handset revenues were the main contributing factors.

Etisalat, which is mainly present in MENA, saw 1 per cent growth in revenue, boosted by the businesses in Egypt and Chad. However, growth slowed compared to the 2.4 per cent rise recorded in Q4 2019, due to the impact of Covid-19 on domestic operations.

And MTN, operating in Africa, reported limited impact from Covid-19 on its performance for Q1, as the lockdown measures across most of its footprint were not introduced until the last week of the quarter. In April 2020, however, the pandemic proved a catalyst for an increase in data traffic across MTN’s footprint, up 115 per cent compared with April 2019, with the highest increases in Nigeria and Ghana.

Regarding profitability, the aggregated EBITDA margin of the 27 analysed groups declined only slightly, from 34 per cent in Q1 2019 to 33.7 per cent in Q1 2020, with 20 groups reporting EBITDA margin of more than 30 per cent. On the capital expenditure side, as the 2020 budgets set in 2019 did not foresee the global pandemic, groups continued with 5G rollouts and 4G upgrades in Q1 and spent $4 billion more in the quarter than Q1 2019.

Outlook
Despite these reassuring results, it is worth understanding that Q2 may look less positive. This is due to majority of lockdowns being introduced at the end of March, therefore mainly affecting second quarter results. At the same time the worsening economic situation across the world means an increase in unemployment, which will have a negative impact on telecom revenues, particularly in developing markets with limited fixed broadband coverage and where the majority of subscribers are on prepaid tariff plans.

The main challenge in upcoming months therefore will be managing the bad debt and balancing the liquidity. On the capex side, devaluation of local currency against the US dollar in developing markets may result in an investment slow down. Other factors that may decrease capex are supply chain disruptions and new site installation limitations due to lockdown restrictions, especially in case of a second wave of Covid-19.

In terms of capex drivers, capacity improvements may lead to an increase in the infrastructure spend. However, most of the 27 groups report their networks are coping with the increased data traffic and since most countries have already seen the transition to homeworking, it is unlikely the Q1  rate of growth in data traffic will continue to increase across the remainder of 2020.

– Alla Shabelnikova – senior financial analyst/forecaster, 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/global-financial-benchmarking-q1-2020
[2] https://www.mobileworldlive.com/wp-content/uploads/2020/07/GSMAi_majoroperator_q1_comparison.jpg

Earlier this year, we kicked off a series of blog posts to discuss how suited various markets were to launching 5G. As part of the series, we want to look at South Africa this month with its recent 5G launch.

South Africa is among the most diverse nations in the world, with people of many cultures and religions. The telecom landscape, on the other hand, is characterised by a duopoly where Vodacom and MTN command about 70 per cent of the market share by connections, with Cell C and Telkom maintaining approximately 14 per cent each. At the end of Q2, market penetration of mobile connections stood at more than 165 per cent, smartphone penetration at 60 per cent of total connections and 4G population coverage at 95 per cent. And yet, eight years after initial launches, 4G only accounts for 30 per cent of total mobile connections.

Got you thinking into what is holding the 4G uptake in a country which boasts of 165 per cent of population having access to mobile services? It got us thinking too. So, let’s try to understand the reasons.

Factors impacting 4G penetration
In general, low 4G penetration in any country can be driven by various factors: consumer affordability, high taxes, non-availability of devices, higher tariffs, low digital literacy et cetera. What’s at play in South Africa?

High data connectivity costs: As of Q2, data connections in South Africa accounted for only 50 per cent of the total. At a cost per gigabyte of $6.81 as of Q4 2019, Research ICT Africa’s Retail African Mobile Pricing (RAMP) Index ranked South Africa 33 out of 46 (one being the lowest in data tariff) African countries. Relatively high data tariffs, in turn result in consumers purchasing either short term or limited data bundles, resulting in low 4G uptake.
Lower digital literacy rates: A big chunk of the South African population is digitally illiterate, having limited or no understanding of basic aspects of digital such as connectivity, devices and skills. Some industry sources estimate the number at 80 per cent. Lower digital literacy rates further discourages the uptake of LTE services.
Inadequate spectrum: Lack of adequate spectrum in the market is argued to be the contributor to high data tariffs. In the absence of adequate spectrum, operators have to invest more in existing bands to densify and increase the coverage. The additional investment is then translated into higher data tariffs. Example: operators in South Africa are still eyeing 700MHz as the key band for 4G.

Now, as the market is still ramping up 4G uptake, we see 5G getting rolled out in the country with some operators even ahead of schedule. So, what’s behind the 5G launches?

The COVID-19 (coronavirus) pandemic (accompanied by lockdowns and remote working) resulted in surging in data traffic globally. For its part, South African operators like Vodacom experienced 40 per cent growth in data traffic, while MTN experienced 56 per cent growth from February to April.

To ease congestion and create capacity for new data traffic requirements, the South African telecoms regulator ICASA announced a temporary allocation of spectrum in various bands (700MHz, 800MHz, 2300MHz, 2.6GHz, and 3.5GHz) until November. Vodacom leveraged the opportunity to launch its 5G services on the 3.5GHz spectrum in several cities. MTN followed the move and launched on the last day of the quarter adopting a dynamic spectrum sharing model in various frequencies (700MHz, 2100MHz, 3.5GHz and 28GHz).

Launching a new generation of technology in temporary spectrum allocations might seem risky or, at the very least a bold move. But the operators have it covered. A roaming and managed services agreement between Vodacom and Liquid Telecom gives Vodacom the access to a wholesale 5G network Liquid Telecom is building using its stock of 3.5GHz spectrum. Liquid Telecom offers wholesale network services in the country on the various spectrum bands assigned to it. This explains why Vodacom jumped on the opportunity to launch 5G services on temporary 3.5GHz spectrum.

For MTN, the dynamic spectrum sharing model used to launch 5G allows it to continue with services even after the expiry of temporary spectrum rights in some of the bands. Not to forget, the deal between Vodacom and Liquid Telecom is nonexclusive, opening doors for other players (MTN) to strike similar agreements and access the 3.5GHz spectrum held by Liquid Telecom.

Operators in the country are also optimistic of the 5G auction being held by the end of this year, which will also allow them a smooth transition to auctioned spectrum in these bands with minimum disruption for customers.

Is now the right time for 5G launches?
From the 4G experience in market and the underlying challenges on data costs and digital literacy which still needs to be addressed, we expect consumer 5G uptake to be slow and estimate the technology to account for only 8 per cent of the total mobile connections by 2025 (see chart, below, click to enlarge).

[1]

Based on this, one might argue operators have jumped the gun by launching 5G services in a market not yet prepared to fully reap the benefits. But, it’s the angle of looking at things that matters. There are benefits we can already see from the launches:

Alternate and last mile connectivity: In recent years, South Africa has invested in its fibre footprint and now has fibre available in more areas than ever before. Fibre paired with 5G, however can be used to offer affordable internet access to users through FWA solutions. This brings us to another important argument: connections might not always be the best evaluation criteria to define the success of a technology, particularly in the 5G era where larger economic benefits are expected with digital transformation in enterprises.
Enterprise 5G: Speaking of digital transformation, the full potential of 5G is expected to be realised with the help of use cases in the enterprise sector. In South Africa, tourism can act as a catalyst in 5G uptake. The use of technologies like AR/VR can bring new opportunities in tourism. Mining is another sector which stands to gain from 5G in the country.
Early mover advantage: Barring a few exceptional markets, 5G will co-exist with other generations of technologies until 2025. The full stream of benefits will start to come with the deployment of standalone networks. Timely launches, though give operators the opportunity to explore and experiment with use cases, allows early partnerships to form and provides learning experiences to help in fully tapping the potential of 5G.

South Africa stands to benefit from the timely launch of 5G services.
Considering the 4G experience and challenges with data costs, 5G might not appear to be the right choice at this time for South Africa. Yet, the success and potential of 5G should not be measured by connections alone, particularly given the wider economic gains 5G will bring by enabling digital transformation. Moreover, with South Africa’s Competition Commission imposing a mandatory reduction of data tariffs, steps are already taken in the right direction to promote uptake of 4G or 5G.

The launch of 5G services is timely in South Africa and, with the right ecosystem partnerships, operators stand to gain by unlocking the numerous opportunities in the enterprise sector. All they need to do is act quick and learn on the way.

Radhika Gupta – head of Data Acquisition; Gaurav Thareja – research 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/wp-content/uploads/2020/07/GSMAi_SouthAfrica_Tech_Connections.png

In May, I wrote a blog off the back of a research series [1] we kicked off earlier in the year.

The question we set out to answer with the research was a fairly simple one: what service and technical capabilities do operators need to successfully sell into the enterprise sector? Okay, the question was a little more complex than that. While operators have consistently highlighted enterprise verticals as the biggest new 5G revenue opportunity, the reality is most mobile operators have been selling B2B services for years. So, what actually changes with 5G? And what will need to change in terms of how services are delivered for operators to execute on their enterprise aspirations?

To answer these questions, we contacted a set of operators which are deeply engaged in delivering connectivity and other services to the enterprise segment. In particular, we spent a lot of time trying to understand how service level agreements (SLAs) would need to evolve if 5G is tied to delivering specific service capabilities. Ultimately, we received a mixed view from operators on whether or not SLAs would actually need to be more granular or different from what’s offered today.

But, if 5G investments are being broadly justified by enterprise digital transformation opportunities, then we need to look beyond operators with a long track record of B2B sales and well-developed B2B strategies. We need to look the broader universe of mobile operators. And that’s just what we did when we surveyed 100 operators for their views on enterprise services earlier in the quarter. It’s almost like we had it all planned at the outset.

5G in enterprise, is it that important?
The narrative around 5G in the enterprise segment has been well-elaborated on many occasions. It brings new network and service capabilities, massive IoT support, low latencies, ultra-reliable connectivity, which will enable operators to drive enterprise digital transformation, fund their 5G builds, and grow their revenues. We see this reflected in technology pilots and service trials from 5G pioneers. But what about everyone else?

Short answer: 5G is a core part of enterprise service strategies for nearly all mobile operators.

Long answer: 47 per cent plan to sell 5G-based connectivity to businesses in 2020, with 90 per cent planning to do so by 2022. That’s impressive, sure. But it doesn’t say much about the importance of advanced 5G capabilities and how they will support enterprise digital transformation. To understand that, you’d need to ask operators about the importance of standalone (SA) 5G. And when we did just that? SA 5G came out on top in terms of technology capabilities required for enterprise success, besting things like in-building coverage and edge networking.

How about SLAs?
A major implication of our initial analysis was that operators were roughly split in terms of how they saw enterprise SLAs evolving in a 5G world: half thinking SLAs will need to be more granular if services are tied to new 5G capabilities, while the other half figured they would be fine just as they are. If you’d hoped that the leading lights of 5G and enterprise services would lend insights, you’d have been wrong.

Against that backdrop, it’s nice to see the rest of the operator universe sees SLAs as critical to enterprise success.

While SA 5G may be deemed the most important technology capability for operator success with enterprise sales, SLAs weren’t far behind. On a scale of one to five (where five was tops), SA came in at an average of 3.88. Security and performance SLAs averaged 3.82 each, tying in second place for the most important capability. And right behind them in the number three spot: network and service performance visibility (presumably to ensure that SLAs can be delivered).

So, what’s the answer?
Let’s to our original question, the one in the title: what do operators need for enterprise success, particularly as we move further into the 5G era?

Recognising the importance of SLAs and SA 5G is a good start. If the argument is that 5G plays to digital transformation based on new technical capabilities, SA will be needed to deliver those capabilities and SLAs will be needed to prove that they are actually being delivered. Actually rolling out SA and more granular SLA support, however, is more important. To that end, it’s encouraging to see new SA launches every month. Will operators move with equal ambitiousness on new SLA strategies and offers? It’s unlikely, but those who do will be in a much better position to execute on the enterprise 5G opportunity.

– 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://www.mobileworldlive.com/blog/intelligence-brief-will-enterprises-pay-for-5g-without-service-level-agreements/