Prof. Jason Whalley
With the spread of Covid-19 around the globe, a new normal emerged as governments sought to tackle the virus. International travel stopped, schools were closed, all but essential retail ceased and many organisations moved online with their employees working from home. Covid has wrought enormous damage, in terms of the number of deaths that have resulted as well as its socio-economic impact.
While Covid-19 has wrought devastation to some parts of the economy, other parts have prospered. According to a recent article in the Financial Times, 100 companies have seen their stock-market value rise by at least $8.2 billion between the start of the year and the middle of June 2020 (Financial Times, 2020). With increases of more than $200 billion apiece, the top three companies were Amazon ($401.1 billion), Microsoft ($269.9 billion) and Apple ($219.1 billion). The products and services provided by these companies are aligned with the demands of the pandemic and the ‘new normal’ that has emerged – Amazon’s online retailing provided many consumers with a way to purchase whatever they needed as shops were closed, and allowed retailers to generate sales and distribute the goods via its logistical network. And not only did many companies switch to Microsoft Teams to satisfy their meeting needs, but the relatively diversified nature of Microsoft meant that it benefited in other ways, such as through increased demand for its cloud services as well Xbox, its (online) gaming business.
But what other companies have thrived? With the move online, technology companies have prospered. Zoom, which many people had not heard of at the start of the year but which is now on the verge of becoming a noun, has seen its capitalisation grow by $47.9 billion, while Facebook has added $85.7 billion. Those companies providing some form of content, which may be TV shows and films (e.g., Netflix), video games (e.g., Activision Blizzard) or music (e.g., Spotify), are also prominent among the 100 companies listed, as are e-commerce companies (e.g., JD.Com, Shopify).
Less prominent on the list of companies identified by the Financial Times are those that design or manufacture the equipment that others use. Just three companies fall into this category, namely, Nvidia ($83.3 billion), ASML ($27.3 billion) and Advanced Micro Devices ($11.6 billion). This would seem to suggest that the market rewards those who use technology rather than those who develop or manufacture it. In contrast, American Tower, which builds and operates masts around the globe, which is an arguably a less glitzy activity, added $15.2 billion in market capitalisation.
Conspicuous by their absence are telecommunications operators, either fixed or mobile. There is only a single telecommunications operator listed among those companies identified by the Financial Times: T-Mobile. This US-based mobile operator has seen its value rise by $59.7 billion, reflecting the completion of its long-discussed merger with Sprint on the one hand and the increase in demand for communication services due to Covid on the other. But this rise is surprising, especially when the performance of other operators is taken into account: the share price of many operators, including T-Mobile’s two main rivals in the United States, have fallen over a comparable period. The share price of AT&T has fallen by 22%, and Verizon by ‘just’ 7% (Business Insider, 2020).
Determining why the market valuation of T-Mobile has risen so much detracts from the wider point, namely, that only one operator is identified by the Financial Times. Given the widespread move online that Covid brought about, it is reasonable to expect that the increased demand for their services would result in more operators being included among the top 100. That this has not occurred reflects the increasingly difficult position that many operators find themselves in. The provision of a telecommunications infrastructure is expensive. The network needs to be built and then maintained, not least to ensure that it can meet the demands placed on it. On the other hand, consumers view the telecommunications network as a means to connect them with the services and products that they want to consume. Many users will not think twice about their operator until their access to the Internet is somehow interrupted or the prices they pay dramatically increase.
But operators are integral part of today’s new normal. They have provided users with a pipe that allows them to shop online, watch a TV show on Netflix, work from home and communicate with their colleagues, friends and family. And networks coped with the resulting increase in traffic – in the UK, for example, Openreach reported that traffic on its network increased by 28.58% between the weeks commencing 24 February and 20 April 2020 in London to 112.37 PB (ISP Review, 2020), while Vodafone said that its mobile voice traffic increased by 42% in the first couple of weeks after lock-down was imposed in the UK (Petty, 2020). Without the infrastructure that operators have provided, and the opportunities that this afford, lockdown would have been very different and perhaps difficult for many. The key role played by operators means that as governments begin to consider the post-Covid economy, a number of interwoven issues will need to be addressed.
Firstly, how can operators be encouraged to invest in their networks? As operators are squeezed between users and online companies, there is a clear need to ensure that they are able to earn a sufficient return to fund their investment activities. As working from home is likely to become far more widespread after pandemic restrictions are lifted, these investments will not only need to improve the quality of existing infrastructure but also expand network coverage to those areas currently lacking it.
Related to this is a second issue, can operators be encouraged to accelerate their switch to new technologies? It is only a matter of time before fibre based fixed and 5G based mobile networks become the norm, but could operators be persuaded to make this change faster than previously planned? Governments will undoubtedly have a role to play in this decision, but so will the operators themselves as they seek to craft a business model that makes sense for their particular set of circumstances. The experience of operators in countries, such as the UK and US, suggest that developing a successful business model that combines connectivity – the ‘pipe’ – with content is easier said than done. Thus, the third issue that is likely to be extensively discussed is what business model should operators adopt? Should they focus on the pipe, or develop business models that combine connectivity with (potentially) more lucrative products and services?
Business Insider (2020) Markets insider, available online at markets.businessinsider.com
Financial Times (2020) Prosperity in the pandemic: the top 100 companies, 20 June / 21 June, available online at www.ft.com
ISP Review (2020) COVID-19 Impact — Openreach’s network traffic by UK region update, 29 April, available at www.ispreview.co.uk
Petty, S. (2020) how our networks will cope with more people staying at home, Vodafone, 25 March, available at newscentre.vodafone.co.uk
Dr Jason Whalley is Professor of Digital Economy at Newcastle Business School, Northumbria University, Newcastle, UK. His research focuses on the interaction between technological change, regulations and market structures. Dr Whalley has published extensively on the mobile telecommunications industry, often in conjunction with Professor Peter Curwen, while with others he has published on the Internet of Things, the provision of broadband in rural and remotes areas as well as telecommunications in the Himalayas. Dr Whalley is editor of Digital Policy, Regulation & Governance, and vice-chairman of the International Telecommunications Society.