Canadian telecom industry likely to face $2 billion revenue hit: IDC

GETTY

Canada’s telecom industry is going to face about a $2 billion revenue hit because of COVID-19, resulting mostly from business customers cancelling broadband wireline services, according to a report from the International Data Corporation, an analytics research firm.

Raymond James analyst David Heger said he agreed with IDC’s projection of the industry and said it is in line with how he expects the sector will be impacted.

“One of the biggest factors for business telecom services is the health of the economy and the health of businesses and [prior to the pandemic] we were finally seeing overall modest wireline growth and some of that was being helped by business customers spending more.

“I think now, you’re going to see a pretty drastic change from that, where you’re in an environment where businesses, in particular, are likely disconnecting services in a pretty big way,” he said.

IDC indicated that wireline, voice, data, internet, and wireless will likely be affected by the revenue hit, and forecasted that telecom spending will decline to -0.8 per cent, down four per cent from the 3.2 per cent growth it initially projected for the year.

“The impact of the COVID-19 crisis represents the most significant deceleration in ICT [information communication technology] spending growth Canada has experienced in modern time,” Lars Goransson, managing director at IDC Canada, said in the report.

The report added that COVID-19 will have a greater impact on the sector than that of the 2008 financial crisis, “due to massive layoffs and challenges for small and medium businesses that will lead to projected business failures.”

Despite the losses, an RBC analyst note said the sector is still a “constructive place to hide for investors.”

“The Canadian telecom sector is far from immune to direct COVID-19 impacts,” the report read. “However, we view these potential direct COVID-19 impacts as relatively manageable, particularly given the essentiality of telecom services to Canadians and given the sheer magnitude of disruptive near-term impacts that COVID-19 will have on major aspects of the Canadian economy as the country effectively shuts down in the near term.”

Like the IDC report, RBC said that the sector will likely be able to recover losses by 2021.

That prediction will be detemined by how quickly businesses recover, Heger said.

“Hopefully we’re able to get out and about more and that you’ll see a general pick up in economic activity, which in turn, should mean more businesses begin opening back up and resuming services,” he said.

A Bank of Montreal analyst note said that carriers will likely be able to offset revenue loss through “cost containment from store closures,” as well as less advertising and promotion of services.

Revenue losses will also come from lower wireless roaming charges, subscriber additions, equipment revenues and advertising sales, the note said.

A Scotiabank analyst note indicated that the industry is still, despite the pandemic, an attractive industry to investments in.

“We believe the sector will provide investors attractive potential total return of over 20 per cent including the dividend,” the report said.

In the interim, the note said there expects to be a “ceasefire on competition until the coordinated fight against COVID-19 is over.”

Looking ahead, Scotiabank wrote that carriers will ramp up competitive activity as they look to make up for losses during this time.

IDC wrote in its report that the duration of the pandemic poses “the greatest risk of uncertainty” to the sector.

“In such a rapidly changing environment, it is still too early to assess the overall impact on the Canadian ICT market fully,” Nigel Wallis, research vice-president of IoT and industries at IDC Canada, said in the report.

Heger echoed that these are unprecedented times and the industry has never “been through anything like this before.”

“The government recognizes that the longer they have everything shut down the harder it is going to be on people, so I think there’s a thought of trying to get things open back up as quickly and as reasonably possible,” he said. “That is going to be the biggest factor.”

Download the Yahoo Finance app, available for Apple and Android and sign up for the Yahoo Finance Canada Weekly Brief.