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Countering the threat to Europe’s 5G rollout

European telco investments under the economic downturn

So far, the COVID-19 pandemic has had little adverse impact on telecommunications companies (telcos). On the contrary, with a surge in home-working and digitization, communication capacity and quality requirements have increased, making telcos even more critical to our economy and society. However, going forward, the global economic crisis resulting from the pandemic will have a significant impact on the ability of telcos to invest in rolling out 5G mobile networks.

Using the experience of European telcos during the financial crisis of 2008-09, we have modelled the likely effects of the current downturn on their investment spending. Following the 2008 crisis, European telcos saw their revenues fall over two years. This revenue decline translated into a significantly larger drop in investment spending that fell particularly hard on mobile networks and IT capital expenditure (capex). Applying our findings to the current situation leads us to some major projections:

  • European telcos’ investment spending over the next two years will fall by €6bn-€9bn 
  • Rollout of 5G mobile networks will be delayed by 12 to 18 months
    Capex budgets will come under additional pressure as telcos invest to accommodate changing patterns of demand for network capacity, caused notably by increased home-working and reduced commuting 
  • A carefully considered response from operators, suppliers and regulators will be needed to respond to COVID-19 impact

As a result, telcos need to act urgently to address the squeeze on their 5G investment plans. Specifically, they must review their 5G business cases and deployment timetables, given the significant growth and changing pattern of demand for network capacity that has emerged due to the COVID-19 lockdown. We expect a reprioritization of capex plans across all areas of the business to secure sufficient funding, to continue investing in 5G and to partially mitigate the risks of delaying deployment, while at the same time coping with increasing demands on their fixed infrastructure. This will involve tough choices: a complete review of capex plans, a drive to achieve further capex efficiencies and delays to sele cted transformation projects in other areas.

How COVID-19 is reshaping demand for telco services

With COVID-19 much has changed and we see significant issues on the demand side across all major areas of the telcos’ operations – fixed, mobile and wholesale networks – that will challenge their existing 5G rollout plans.

Demand has both surged and shifted
Since widespread lockdowns came into force around the world, broadband video consumption has surged. This level of growth has major impacts on fixed, mobile and wholesale networks:

  • Fixed Networks: Streaming traffic on fixed broadband has increased 50 percent across European networks, operators report. 
  • Mobile Networks: Operators report that streaming traffic on mobile networks has increased 40 percent since the start of the COVID-19 crisis, according to European telcos.
  • Wholesale Networks: On average, points-of-presence (POPs), where an operator connects to its network, have grown 20.5 percent, with a peak of 208 percent growth  

Actions to take with 5G rollouts at risk: key steps for operators, vendors and regulators

The COVID-19 crisis is highly likely to lead to a marked slowdown in investment by European telcos over the next two years, particularly in mobile networks. This will have major implications for the rollout of 5G services.
There is no doubt that 5G will remain the near-term technology priority for telcos, however we believe the business cases that telcos have previously adopted will have to be revised. More ‘blue sky’ applications that depend on 5G, such as dense networks of micro-cells to provide ubiquitous connectivity for autonomous vehicles, are likely to be put on hold. Equally, in countries that have not yet sold 5G licenses, operators may be reluctant to make major investments in new spectrum under the current conditions. We therefore expect the pace of rollouts in these countries to slow significantly. In order to preserve sufficient headroom to invest in 5G rollouts, operators should undertake a major rethink of their capex allocations across all areas of their business and further improve their management of capex to realize efficiency gains. At the same time, suppliers need to reconsider their production and investment plans to cope with slowing 5G investments. Regulators meanwhile, will want to ensure continuity in investment and digitalization.

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Jens Niebuhr

Jens Niebuhr

Partner, Strategy& Germany

Steven Pattheeuws

Steven Pattheeuws

Partner, Strategy& Netherlands

Kağan Karamanoğlu

Kağan Karamanoğlu

Territory Leader, Strategy& Turkey