Telco shares are surprise losers as lockdown drives internet boomApril 16, 2020
As lockdowns worldwide drive a surge in internet use, boosting online sales for businesses as varied as gaming and food delivery, the stocks of internet providers are an unlikely laggard on global markets.
In Asia, Africa, Europe and the Americas, a combination of high fixed costs, debt and market disruption has left telcos significantly underperforming the data-hungry businesses their networks carry.
“It’s a bit of a surprise,” said Kasper Elmgreen, equities head at Europe’s biggest fund manager, Amundi Asset Management.
“The traditional defensive sectors have played defensive, but telecoms have not really been defensive,” he said, pointing to price drops more or less in line with European markets.
Globally, a 13% drop in the MSCI world telecommunications services index .MIWO0TS00PUS pales in comparison to healthcare .MIWO0HC00GUS, down 6%, technology .MIWO0IT00PUS, down 8%, or consumer staples .MIWD0CS00PUS, down 10%.
The poor showing illustrates the difficult dynamics facing carriers, even when their services are more essential than ever.
Around the world, millions of people are confined to their homes and businesses closed as governments restrict movement to halt the spread of the coronavirus which has led to over 113,000 deaths.
That has driven business and entertainment online, but left telcos spending to service surging demand, and, with fixed pricing structures, no quick way to monetise the investment.
At the same time, roaming revenue has dried up as people travel less, and telcos are bracing for a slump in new contracts accompanying a wave of unemployment as businesses shut.
“Because of flat-rate deals, we hardly get any extra revenue if people spend more time surfing or talking on the phone,” Ralph Dommermuth, chief executive of German telco 1&1 Drillisch AG (DRIG.DE).
“I can’t yet say whether more time being spent in the home office will compensate for revenue losses that will arise because many companies or private individuals have to put off renewing their contracts or can’t pay their bills.”