Fixed broadband and COVID-19: Demand up, but ARPU under pressure



  • Telcos are at the centre as COVID-19 spreads its footprint in Australia.NBN has waived additional CVC capacity charges of up to 40 per cent for three months, and the RSPs have come up with initiatives such as increased data and speeds at no additional costs to end users.

  • There is a massive global shift in employees working from home (WFH), creating a pressure on telcos to adapt to the new data traffic pattern. Venture Insights’ latest Australian consumer survey shows that 33% of respondents plan to increase existing WFH days due to the coronavirus, with about 42% not able to do so. 23% do not believe their service is suitable to WFH and are thinking about upgrading, potentially creating a revenue opportunity for the telcos.

  • ARPU pressure on RSPs to continue. Our consumer survey shows that price is the main reason for consumers to change their broadband provider, with 43% of respondents citing it. We have previously reported market pressure on ARPUs and we believe that this pressure will increase post-COVID-19 when an economic slowdown will result in more consumers looking to save money on broadband services.

  • Short- and long-term impact: In short-term, an increase in the data traffic on home broadband networks won’t be monetarily beneficial for the telcos due to their voluntary free increase in data allowance and/or speed tier for their consumers. In the longer term, a retention of consumers on the higher plans may create revenue opportunities for them. However, we believe the bigger issue is further pressure on retail ARPUs as customers churn from premium broadband providers to cheaper alternatives due to the expected economic downturn.


Introduction

As COVID-19 spreads its footprint in Australia, social-distancing and quarantine measures are becoming the norm. This includes a large number of organisations directing their employees to Work From Home (WFH) where possible, and educational institutes moving to online learning, increasing the load on residential broadband networks. In this report we look at how telcos are stepping up to this challenge, discuss consumers’ broadband requirements for WFH based on our Australian consumer survey and look at short- and long-term implications of COVID-19 for the fixed broadband.


Telcos taking initiatives to address new broadband needs

On the 16th March 2020, the Australian Government had a virtual roundtable with telcos to discuss the measures in place to support telecommunications services, including broadband. The telcos have already been taking measures to address the changes in data usage pattern and the increased load on residential broadband networks amid the social distancing measures being adopted by the Australians. It is interesting that fixed broadband rather than mobile is emerging as the key in the move to self-isolation and working from home, underlining its strength as a bit-hauling infrastructure.


NBN Co

  • NBN has waived additional CVC capacity charges of up to 40 per cent for three months to help retail service providers (RSPs) address the increased home broadband requirements. “NBN Co will set the CVC usage charges applied in February 2020 as the baseline, waiving any additional changes for overage that would otherwise be incurred by RSPs over the next three months”.

  • NBN will reduce its non-essential maintenance to reduce planned outages in the near term.

Telstra

  • All broadband plans will be upgraded to unlimited data until April end for personal and small business customers.

  • Telstra will pause legacy copper and HFC disconnection till June 2020 required due to migration to NBN.

  • Telstra has paused job cuts for six months and brought forward A$500mn of capex to boost network capacity and 5G rollout.

Optus

  • A majority of Optus fixed broadband customers are already on unlimited plans. Optus is increasing that data cap to unlimited to rest of the plans too.

  • Optus is offering an option to put the customer’s current plan on hold if they don’t need it, waiving late payment fees and stopping disconnection and credit collection activities.

Aussie Broadband

  • Unlimited data between 6 am and 6 pm for all plans.

  • NBN 12 customers will be upgraded to NBN25 free of charge.

  • It is pausing service suspensions due to late payments.

Figure 1. Aussie broadband CVC graph and network traffic in Parramatta region on 29th March 2020. Even after offering more data and higher speeds, the network usage is within CVC limit.


SOURCE: AUSSIE BROADBAND WEBSITE


Superloop

  • Unlimited data for all broadband plans.


Activ8me

  • Additional 15GB of data per week for the next three months for SkyMuster NBN customers.


Amid a reduction in on-site workforce and the closure of most international call centres, telcos are now promoting online self-service such as Optus Yes Crowd, My Telstra, and My Vodafone.


Work from home set to increase rapidly

During the global growth of the COVID-19 virus, there has been a large range of organisations who have directed their workforce to Work From Home (WFH) where possible. In addition, as the pandemic has grown, governments around the world have begun to close non-essential business premises thus directly adding to the number of people now working or planning to work from home.


Venture Insights’ latest Australian consumer survey (completed 23 March 2020) shows that 33% of respondents who have a broadband connection at home plan to WFH or increase existing WFH days with 42% not able to WFH and currently 26% unsure – however, we expect this last group to move into the WFH category given the Australian government’s focus on trying to contain the spread of the virus.


Figure 2. With the recent events surrounding Coronavirus, are you expecting to work from home and/or increase your number of days working from home?

SOURCE: VENTURE INSIGHTS CONSUMER SURVEY MARCH 2020, N=1,016


Of the people who are currently or planning to WFH, about 54% believe their home broadband service is suitable for work, while about 30% have concerns their current home broadband service is not suitable for some or all of their WFH activities.


Figure 3. Do you feel your home broadband service is suitable for working from home?

SOURCE: VENTURE INSIGHTS CONSUMER SURVEY MARCH 2020, N=1,016

23% of the people who are currently or planning to WFH do not believe their service is suitable and are now thinking about upgrading their service, while 34% are not sure.  This represents a significant plan upgrade opportunity for the telcos.


Figure 4. Do you plan to upgrade your home broadband service to better support your work from home?

SOURCE: VENTURE INSIGHTS CONSUMER SURVEY MARCH 2020, N=1,016


Many of the people planning to work from home may have limited IT equipment at home and limited cybersecurity capabilities – ranging from unsecure routers and home IoT devices to home computers which are not running up to date software patches or virus protection and which indeed may already be infected.  This creates a massive increase in potential attack vectors for organisations who have previously tried to control security on-premise or with select computer devices. For details on cybersecurity threat amidst COVID-19 crisis, read our latest report.


Telcos resilient in short-term but long-term impact uncertain

It is unclear at this time how long the impact of COVID-19 would last for. We believe that the telco industry would be relatively resilient in the short term, but its longer-term performance would be dependent on how the economy performs.


Short-term impact: In general, in short term, it appears that social distancing measures and an increase in WFH will result in revenue opportunities for telcos in consumer segments as the consumers grow increasingly reliant on telco services. For example, Optus reported there was 77%, 76% and 1211% increase in usage of WhatsApp, Facebook Messenger and Zoom respectively for the week ending 16th March when compared to the average week for the previous month.


However, as noted in a previous section, most of the major telcos have voluntarily increased data allowance and/or speed tier for their customers temporarily during this COVID-19 crisis without any additional charge. This means that an increase in the data traffic on the home broadband network won’t drive extra telco revenue in the short term. On the upside, the service delays caused by closure of physical stores and call centres, combined with a temporary increase in broadband capacity, will result in reduced churn of consumers in short-term.


Longer-term impact: We believe that there may be a revenue opportunity for the telcos in the longer term. Having experienced extra capacity and bigger plans, some of the consumers may be reluctant to go back to lower plans once the telcos stop offering the extra capacity.


At the same time, the Australian economy will not recover immediately after the COVID-19 situation is under control, and an economic downturn is now inevitable. Our UK partner, Enders Analysis, has already forecasted a recession for the UK economy in a recent report.[2] This means that the consumers will be reluctant to spend extra cash for their broadband services post-COVID-19, despite wanting to keep experiencing higher speeds and/or data limits. We think this will result in churn of consumers from premium providers to other providers that offer similar services at lower cost.


In addition, bad debt will rise as personal incomes reduce due to movement restrictions and social distancing in the short term, and economic slowdown in the longer term.


ARPUs under pressure: In our Australian consumer survey (completed 23 March 2020), we found that price was the most important factor for the consumers to change their broadband provider. Of the survey respondents wanting to switch providers, 43% chose price as the reason. This means that there is already a pressure on ARPUs being offered by the RSPs.


Figure 5. What is the main reason you are thinking about changing your home broadband provider?

SOURCE: VENTURE INSIGHTS CONSUMER SURVEY MARCH 2020, N=1,016


This is also consistent with the financial earnings reported by Telstra and Optus in February 2020, where both RSPs reported an ARPU decline of ~4% YoY due to increased activity in the price sensitive end of the market and increased competition. We believe that this pressure will increase post-COVID-19 when an economic slowdown would result in an increase in number of consumers looking to spend less on broadband services.


Other threats and downsides


  • Call centres: At a time when customers are seeking more support from the telcos, Telstra and Optus had to shut a majority of their call centres in the Philippines to help reduce the virus spread. This will be a severe test of the telcos’ self-service systems.

  • Globalisation: There are threats to globalisation due to the spread of COVID-19 as increasingly more restrictions are being put on the movement of people. The current movement disruptions are having have a large short-term impact on the telco industry as its supply chain depends on equipment and device manufacturers spread across the globe, especially with 5G and IoT just starting to increase their footprints. This may lead to some short-term disruptions to 5G rollout in Australia and elsewhere. In the long-term, this disruption will heighten concerns about dependence on global supply chains and accelerate efforts by major economies like the USA and Europe to diversify supply and to manufacture more locally. This will benefit Australia which has effectively banned Chinese telco vendors.

  • Disruption in fixed network upgrades: With NBN planning to reduce its non-essential maintenance and Telstra pausing legacy copper and HFC disconnections, the migration to NBN and the associated network upgrades are being disrupted. Also, the Australian telco networks is able to handle the current increase in consumer data traffic, but any longer and stricter COVID-19 shutdown may start to affect the ability of the telcos to maintain and upgrade equipment promptly.

  • Regional areas vulnerable: In general, the increased traffic to home broadband networks should not have much effect on higher-quality fibre to the home networks. However, fibre to the node and hybrid fibre-coax networks may see interruptions if there is significantly increased traffic in that area. The fixed wireless networks in regional Australia already suffer from poor quality and have little spare capacity. It will be interesting to see how the regional NBN networks cope with the increased data traffic, as this “stress test” will reveal the weaknesses of the network. This may have significant implications for regional productivity in the next few months.


Takeaways


  • Telcos are at the centre as COVID-19 spreads its footprint in Australia. NBN has waived additional CVC capacity charges of up to 40 per cent for three months, and the RSPs have come up with initiatives such as increased data and speeds at no additional costs to the end customers. Amid a reduction in on-site workforce for telcos themselves, several of them are using this opportunity to promote online self-service such as Optus Yes Crowd, My Telstra, My Vodafone and others.

  • There is a massive global shift in employees working from home (WFH), creating a pressure on telcos to adapt to the new data traffic pattern. Venture Insights’ latest Australian consumer survey shows that 33% of respondents plan to increase existing WFH days due to the coronavirus, with about 42% not able to do so. 23% of those who plan to work from home do not believe their service is suitable, and are thinking about upgrading, potentially creating a revenue opportunity for the telcos.

  • However, ARPU pressure on RSPs is set to continue. Our consumer survey shows that price is the most important factor for the consumers to change their broadband provider with 43% respondents choosing it as a reason to switch. Thus, there is already a pressure on ARPUs and we believe that this pressure will increase post-COVID-19 when an economic slowdown would result in more consumers looking for cheaper broadband services.

  • Short- and long-term impact: In short-term, an increase in the data traffic on home broadband networks won’t be monetarily beneficial for the telcos due to their voluntary free increase in data allowance and/or speed tier for their consumers. In the longer term, a retention of consumers on the higher plans may create revenue opportunities for them. However, an economic downturn in longer-term may make consumers reluctant to spend extra cash on broadband services and result in a churn of consumers from premium broadband providers to cheaper alternatives.

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