The prevailing Covid-19 pandemic is unlikely to lead to many downgrades within the telecommunications industry across Europe, the Middle East, and Africa (EMEA) as rising connectivity demand insulates against the worst economic and credit distress.
Some telecommunications companies may hit a “few speedbumps” amid projections of a global recession and potential pressure on their business-to-business revenue, a new report by S&P Global Ratings warns, however, there may even be pockets of opportunity.
“Fixed voice and broadband traffic has spiked by 50% to 100%, and a lasting increase in demand may prompt a consumer shift to more premium packages. The duration of this upswing remains to be seen, but will likely hinge on the span of the Covid-19 outbreak,” said S&P Global Ratings credit analyst Mark Habib.
The ‘Covid-19: EMEA Telecoms Will Prevail, But Not Completely Unscathed’ report indicates that the telecommunications sector has been significantly less hit by the Covid-19 fallout than many others, and anticipates the sector will remain resilient.
Initial reports from a sample of large telecom players indicate traffic increases in the 30% to 70% range across mobile broadband, he explained.
“We expect downgrades as a direct result of Covid-19 in our EMEA telecommunications portfolio will be limited compared with other industries.”
To date, S&P Global Ratings has not lowered its ratings on any telecommunications company in EMEA as a direct result of the Covid-19 pandemic.
“The fast-moving situation is difficult to predict, but we believe telecoms will remain resilient,” he noted.
Telecommunications companies could face risks from direct revenue exposure to Covid-19-related disruptions in mobility, retail and supply chains; potentially constrained liquidity; and country risk where the growth prospects have dimmed because of the pandemic's economic repercussions.
“Some telecommunications firms may face liquidity challenges owing to short-term funding needs. Furthermore, our sharp downward revision to gross domestic product growth forecasts could constrain sovereigns' creditworthiness,” Habib added, noting that this could lower the ceiling for local companies that have a rating linkage to the credit quality of the sovereigns in which they operate.