Higher dependence on digital tools amid lockdown driving demand for telecom services: Report
However, the lockdown is expected to arrest 4G subscriber addition and churn while accelerating SIM-consolidation, Edelweiss said in its latest telecom sector update. Maintaining a positive stance on the sector, it however flagged specific but "distant" risks including possibility of a prolonged economic slowdown eroding consumers' ability to spend, and the Indian telecom sector historically bearing disproportionate burden of government finances "which may continue in the current phase".
It noted that a paradigm shift in consumer behaviour is underway in the wake of the lockdown and social distancing measures, that are aimed at containing the spread of coronavirus.
"We argue this is leading to higher dependency on digital tools such as videoconferencing, collaborative applications, etc, thereby driving up demand for telecom services," Edelweiss said.
The lockdown has imploded data demand globally as more people are working from home than ever before and triggered an uptick in the consumption of online content.
Such changes are expected to spur data demand structurally, increasing the wallet share of telecom services.
"Besides, we expect the lockdown to have little financial impact as the classification of telecom services under essentials has ensured service continuity," it said.
It said the "peripheral impact" due to the lockdown would be lower international roaming revenue, special concessions to migrant workers in the form of talk time credit and extended validity, besides SIM consolidation (leading to fewer active SIM cards) and impact on 4G subscriber adds given that new handset purchases have stalled.
It continued to maintain a positive stance on the sector, but flagged three specific but distant risks, which need to be watched out for.
"Historically, the Indian telecom sector has borne a disproportionate burden of government finances, which may continue in the current phase," it said.
Second, a prolonged economic slowdown, as a fallout of the lockdown, may erode consumers' ability to spend, affecting revenue growth. Also, the value created by heightened adoption of digital tools may be entirely captured by application providers, as seen in earlier cycles, it cautioned.
"We believe these risks are distant, and a strong economic recovery and execution can neutralise them," it said.
With the bulk of population home-bound, schools and businesses globally invoked contingency plans that encourage distance learning and work from home. In line, bandwidth requirements, shot up, and so did the en masse adoption of online television, streaming, video games, video calls.
Noting that India's wired broadband penetration (19.1 million connections) is abysmally low, as against total base of 1.15 billion mobile subscribers and 643 million mobile broadband users, it pointed out that with onset of the lockdown, the search for term "broadband" rose three times compared to the pre-lockdown level."Although this surge in demand is unlikely to have translated into immediate subscriber addition due to inability to complete the fulfilment, we believe the lockdown would have spurred latent demand for broadband connectivity. That said, we expect consumers to be more aware of the possibilities in terms of digital connectivity, thereby increasing their importance as well marking a clear shift from the past," it said. MBI HRS
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