End of the roaming era: coronavirus hits telco revenues
The collapse of international travel as a result of coronavirus could cost the global industry $25 billion in lost revenue this year – about half of what the sector makes annually from roaming charges – according to analysts at Juniper Research. coronavirus and roaming
Of this, about $12 billion will be lost during the summer months as people are unable to go on holiday, revenue which is unlikely to be recovered.
So far, telecoms have proven a resilient sector in the crisis, with subscriptions protecting the bulk of their revenue and the services they provide deemed essential by governments.
Last year, analysts had said that the international roaming segment grew at a compounded annual growth rate of 15% over the previous two years and was expected to expand by another 15% over the next two. Those estimates will, however, change following the Covid-19 outbreak, they said.
But analysts say the pandemic will signal the end of the roaming era.
Sam Evans, a senior partner with consultant Delta Partners, said the industry was still clinging on to roaming and high international calling charges.
“It is a legacy business model and it is revenue that the industry should have moved away from,” he said. “Whether they like it or not, roaming will now die.”
Roaming is only a small portion of overall industry revenue, which is forecast to be $820 billion this year according to Juniper. Moody’s, the rating agency, said roaming accounted for about 1 per cent of overall revenue for European telcos.
Despite the European Commission outlawing roaming charges across the continent in 2017, charges still apply for travellers to other parts of the world. Many operators offer customers roaming packages if they travel abroad. The loss of revenue will also be unevenly felt between groups, with those in southern Europe likely to be worst hit.
“International roaming now contributes about 12% of the revenue per month, but that will fall to 8% because of the shutdowns in the second half of March. It may dip further because of Covid-19,” said Rajan Mathews, the director-general of the Cellular Operators Association of India, which represents private telcos Bharti AirtelNSE 4.81 %, Vodafone Idea and Reliance Jio.
International SIM card provider Matrix Cellular International Services also said business had come to a standstill. “The recent outbreak of coronavirus (Covid-19) around the world has hit the travel industry …and a business like ours which is travel-dependent has been severely impacted. We used to sell an average of 60,000-70,000 cards every month, today it has become zero,” said Gagan Dugal, Founder – Matrix Cellular.
Networks have to pay each other to connect to users when abroad, favouring operators in Mediterranean countries due to the annual influx of tourists. Conversely, companies in Germany and Scandinavia tend to be “net payers” as their citizens travel abroad in the summer months, meaning the coronavirus lockdown could reduce costs for some networks.
‘Suffer the most’ coronavirus and roaming
“Greece, Portugal and Spain are very exposed to tourism and therefore operators in these countries will suffer the most,” said Maurice Patrick, an analyst at Barclays.
“A number of operators have indicated that roaming represents between 1 percent and 4 percent of mobile service revenues with OTE being the most exposed.” OTE declined to comment.
Barclays argues that the European telecoms sector is not immune to the effects of coronavirus. The bank cut its profit forecasts across the sector by between 2 and 4 percent as the disease spread with the collapse in roaming revenue one of the “direct” short-term factors, along with lower spending on pre-pay top-ups.
Telecoms companies in other tourist hotspots such as the Caribbean are also more vulnerable as they rely on roaming charges from visitors for a large portion of their revenue.
One chief executive of a small island telecoms company said the effect could be “catastrophic” for some operators with roaming having already halved in recent weeks. “It is going to fall off a cliff,” he said.
The effect will be exacerbated by population drains as immigrant workers – such as eastern Europeans labourers in the Channel Islands or accountants in the Cayman Islands – rush to get back home.
Mr Evans argues that telecom companies should abandon roaming to focus on the positive impact of ensuring people stay connected. “What will undo it all is stories about ‘bill shock’ returning at this time of crisis,” he said. coronavirus and roaming
