Telco shares are surprise losers as coronavirus lockdown drives Internet boom

Telcos have had to spend to service surging demand due the coronavirus lockdowns around the world.
Telcos have had to spend to service surging demand due the coronavirus lockdowns around the world.PHOTO: AFP

SINGAPORE (REUTERS) - As lockdowns worldwide drive a surge in Internet use, boosting online sales for businesses as varied as gaming and food delivery, the stocks of Internet providers are an unlikely laggard on global markets.


"It's a bit of a surprise," said Kasper Elmgreen, equities head at Europe's biggest fund manager, Amundi Asset Management.

"The traditional defensive sectors have played defensive, but telecoms have not really been defensive," he said, pointing to price drops more or less in line with European markets.

Globally, the 13 per cent drop in the MSCI world telecommunications services index compares to healthcare, down 6 per cent, technology, down 8 per cent, or consumer staples, down 10 per cent.






"I can't yet say whether more time being spent in the home office will compensate for revenue losses that will arise because many companies or private individuals have to put off renewing their contracts or can't pay their bills."




Companies such as AT&T, which is down 21 per cent this year, Telefonica, down 30 per cent, and MTN Group have either matched or outstripped benchmark declines.

Vodafone Group, the world's second-biggest mobile operator, last month said data traffic had surged 50 per cent, yet its stock is down 23 per cent - the same as the benchmark index .

"Not only do (telcos) have capex for 5G, but they also have debt payments," said Tariq Dennison, managing director at GFM Asset Management in Hong Kong. "So whenever their cash flows fall, their first priority has to be to those bondholders."

To be sure, the sector is not devoid of defensive characteristics, with the 13 per cent fall in the MSCI world telecoms index comparing to a 16 per cent fall in the broader market .

Falls have also unearthed bargains, with Mr Dennison saying he took advantage of a dip in China Mobile Ltd's stock to increase his exposure to a firm with steady income and few debts.

Yet at the same time, firms the telecom infrastructure carries such as Netflix and have outperformed - leaving network operators behind even as customers flock online.

"I think that trend will strengthen after the crisis," said independent telecoms analyst Paul Budde in Brisbane.

"These are engineers digging cables in the ground, not the ponytail guys coming up with all the ideas."


Deutsche Telekom, conglomerate Bouygues and Telia Company are among only a few large telcos to delay or reduce dividends or downgrade forecasts due to the virus.

But investors fear more to come.



Chairman Denis O'Brien told Reuters debt restructuring would be completed by June, and that revenue was broadly stable.

"The big question is that if people are going to be unemployed, what happens?" he said. "Will they be able to have the 50 cents to a dollar a day in surplus cash to spend on telco services?"

Roaming revenue has also all but evaporated as airlines ground planes - erasing some US$25 billion in usually reliable cash for telcos, showed data from Juniper Research.

Still, some, like O'Brien, hope the storm will pass and even deliver a future with greater demand for data.


"They're being a good corporate citizen and that comes at a cost," said Bruce Smith, principal and portfolio manager at Alphinity Investment Management in Sydney.

"But demand for their core businesses - mobile and broadband - is very strong and they'll probably come out of this with enhanced reputation and an enhanced market share," he said.

"It's a company for the times."