The Special Role of Telcos in Times of Corona and Beyond

In the current coronavirus crisis, the internet has become the “place to be” – this is where people are working, keeping in touch with their fellow human beings via Skype or social platforms, and watching loads of films and series via Netflix and its compatriots. The infrastructure for all this activity is provided by telecommunications operators – their networks must be able to carry the load. We spoke with Dr. Peter Krüssel about what operators are doing in this crisis, and we venture a look ahead to the time after the coronavirus.

Dr. Krüssel, the coronavirus crisis is currently subjecting our networks to plenty of stress. Are they stable enough to carry such a high load?

It is obvious that the networks are under a significantly higher load than before the crisis. The number of telephone calls and data transported over the networks has risen sharply. Since so many people are sheltering at home, the load has increased, especially for the fixed network. Phone calls are being made more frequently and, above all, for longer periods of time; this applies not only to fixed networks but also to mobile networks. DE-CIX, one of the world's largest Internet hubs in Frankfurt, has reported new records for the volume of traffic transported per day. At the same time, the core times of Internet use have apparently shifted. They are now more evenly distributed throughout the day and the entire week. Nevertheless, the networks seem to be sufficiently robust and have enough capacity. In this respect, I do not see any major network bottlenecks in the current situation, either in Germany, Europe or the USA. Our public authorities as well as the carriers and the various service providers are working to ensure that there will be no bottlenecks.

What are the possible options for this?

Various measures were already taken at the beginning of the crisis last year. In the U.S., for example, the FCC, the regulatory authority, has temporarily made frequencies available in rural areas for mobile communications so that corresponding capacities can be provided. Streaming service providers such as Netflix or Disney have throttled the quality of videos from HD to SD. In Germany, the Federal Network Agency (BNetzA) had allowed network operators to temporarily prioritize certain traffic on the network while suspending network neutrality. These are just a few examples that show that the telcos or the authorities have sufficient resources at their disposal for active traffic management.

What is meant by active traffic management?

Active traffic management means that traffic can be prioritized by network operators according to its criticality, for example. This ensures that the services that are really necessary continue to function for certain important target groups. Traffic that could currently be prioritized are services of all public institutions that have to function in such a crisis. Here, the health care system and authorities with security tasks are certainly at the top of the list at the moment. For example, the BNetzA has released the following measures to prevent possible network congestion: 1. prioritization of telephony services and other high-performance services over the general Internet access service; 2. reduction of the traffic load for data-intensive services; 3. measures affecting Internet access services as a whole (e.g., limiting the maximum data transmission rate or other quality parameters). Suspending zero rating or limiting volumes is also conceivable, for example.

A crisis raises the fundamental question of whether operators are prepared for a possible emergency. What are the crucial things that an operator must implement in any case to be crisis-proof?

The crisis shows very clearly that network operators have an infrastructure that is critical for society and the economy. Functioning communications systems are immensely important in such times. The International Telecommunication Union (ITU) has drawn up proposals for precautionary risk management and action plans for specific crises to support telcos in this difficult time.

In the current crisis, the initial focus was on protecting employees and stabilizing the business. In order to ensure the protection of employees, many telcos have practiced very fact-oriented communication about the hazards and the necessary measures. In particular, people who work in mission-critical roles and do not work from home have been provided with appropriate protective equipment and instructions for action. For those who can work from home, the infrastructural requirements consisting of network, system access, hardware as well as software had to be created. Professional collaboration tools were then used to ensure virtual collaboration.

This seems to have worked very well in general, if you look at the performance of the networks and the customer service of the various network operators. I think the network operators have taken a big step in the direction of "Digital Telco" in a short time due to the crisis and have digitized and automated the internal processes of service provision to a greater extent than would have been the case in normal times. In this respect, Covid 19 was a clear accelerator.

How do things stand from the financial perspective?

Due to their business model, telcos are certainly less affected by the acute crisis than some other manufacturing industries. Nevertheless, the effects are evident here as well and are very diverse.

On the downside, they range from payment defaults by illiquid or insolvent customers, revenue declines - for example in the area of international roaming - restrictions in the availability of terminal equipment or rising costs in network-related wholesale areas, to revenue declines caused by the closure of stationary sales channels.

On the positive side, there are potential additional revenues in certain product areas, such as virtual work or services that are priced according to volume, and there is even increased demand for broadband fixed-network lines or higher-value mobile rates.

Ambivalent effects arise from the postponement of spectrum auctions - we have seen this in Spain and the U.S. - delays in network expansion, the ban on price increases for retail products during the crisis, for example in Spain and the U.K., or the decline in churn rates.
Last year, for example, there was particular consternation in the UK and some other countries. Here, 5G masts were set alight on the grounds of allegedly having clear evidence that the pandemic is being accelerated by the new mobile communications standard.

The manifold effects must be analyzed in terms of their revenue and expense effectiveness. In this respect, careful liquidity management is critical in this situation. Planned investments and projects must be scrutinized in terms of their priority - especially against the backdrop of investment-intensive broadband expansion, which will certainly be accelerated by the crisis.

In addition, questions also arise as to how critical institutions and important customers or partners can be supported in maintaining their business operations. This can be done, for example, by granting short-term payment deferrals or making digital product solutions and cloud or network capacities available.

What must be done when the acute crisis has passed?

After the crisis, carriers will be looking at how to become a bit more self-sufficient. Digitalization at all stages of the value chain, from network and IT to sales and service, will be driven forward more strongly. The interfaces to customers and partners will also be digitized much more strongly and quickly in order to meet the "Digital Telco" target image.

Vendor strategies are reviewed for their currentness and scrutinized with regard to supply chains and possible supply bottlenecks. This also includes rethinking existing warehousing strategies and developing concepts for differentiation with regard to specific components. In addition, carriers will turn their attention to new offerings for their customers that go beyond pure connectivity. Security solutions, IoT, smart city, e-learning and collaboration platforms are worth mentioning here.

After the crisis, or even at present, the expansion of broadband coverage, whether mobile or fixed, will certainly be intensified once again in order to be prepared for future extreme situations with appropriately designed and robust fixed and mobile networks. Network operators will be called upon to invest. The political and economic pressure to enter into cooperative ventures with other network operators, infrastructure providers or financial investors will increase in order, for example, to close all mobile communications whitespots nationwide as quickly as possible and provide them with sufficient capacity.

I suspect that the state will be less lenient if, for example, conditions from certain frequency auctions are not met. At the same time, however, the state will have a duty to create the necessary conditions for this in the form of subsidies or accelerated official construction and site approval procedures.

How will the crisis impact the competitive situation?

The chips are being redistributed in the competitive arena, opening up options for all competitive groups. On balance, I see more opportunities than risks for network operators. Their assets, such as the network and customer confidence in the integrity, reliability, transparency, and security of the telcos' offerings, can be leveraged very well under the future conditions.

The big beneficiaries of the crisis are certainly the Internet giants. On the regulatory side, it is important to ensure that they do not expand their already strong market power to an excessive extent. For the telcos and many other market players, the pressure is increasing to find the right balance between competition and cooperation with these players.

Is now the right time to put political demands such as a European cloud on the table and push them through?

Basically, yes. In many areas of digitalization, Europe is lagging far behind the other two major economic blocs, China and the USA. Instead of being primarily a consumer, Europe must also start to become a producer of digital services, platforms and solutions. After all, successfully mastering the opportunities and risks of digitalization will be decisive for the competitiveness and future prosperity of nations and generations.

However, government support is already needed to enable players on the American or Chinese side to compete on an equal footing in terms of know-how, global presence, market shares and economies of scale and scope. European industrial policy should offer all competitive players a level playing field with a uniform regulatory framework in which each player can meet on equal terms and with equal opportunities.

Politicians and industry have recognized the problem, and there are various European initiatives to address it. Examples include the Digital Service Act (DSA) and the Digital Markets Act (DMA), both of which were proposed by the EU in mid-December 2020. In the legislative proposals, ex ante regulation is to be introduced for so-called "gatekeepers" of the digital economy, i.e., for particularly powerful platform companies, in the form of a catalog of prohibitions for certain types of conduct. New obligations are also envisaged for digital service providers, whose role is to act as a link between consumers and goods, services and content. These two proposals replace the EU's e-Commerce Directive, which is around 20 years old, and take account of today's realities in the Internet and platform economy.

Moreover, the amendment of the Act against Restraints of Competition (GWB) in Germany, which aims to create a modern digital regulatory framework, should also be mentioned. Large digital companies that dominate the market are to be subjected to stricter abuse supervision as a result. Other examples are the European cloud project (GAIA-X) or the enforcement of European data protection requirements through the DSGVO.

These initiatives are of outstanding importance in the current Covid 19 crisis because they address the internet giants, which can be considered major beneficiaries of the crisis and which in this situation can further cement their already dominant market position in many areas. I am confident that we will make further progress on these points with the initiatives I have mentioned.

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