The Special Role of Telcos in the Days of Coronavirus 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?
Obviously, the networks are having to carry a much higher burden than before the crisis. The number of telephone calls and the amount of data being transported over the networks have risen sharply. Since so many people are sheltering at home, the burden has increased above all for the fixed network while the load on wireless networks has perhaps been lessened slightly. The DE-CIX, the central internet exchange in Frankfurt, has reported record levels in terms of transported traffic volumes per day while at the same time emphasizing that available capacity is adequate. To this extent, I do not see any major network bottlenecks occurring at the moment, whether 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 not be any overloads.
What are the possible steps they can take to prevent this from happening?
In the USA, for example, the local regulatory authority FCC has made frequencies for wireless communications temporarily available in rural areas to ensure that capacities remain adequate. Streaming service providers such as Netflix or Disney are throttling the quality of video from HD to SD. In Germany, the Federal Network Agency (BNetzA) has allowed network operators to prioritize traffic on the network, a temporary suspension of network neutrality. These are just a few examples showing that the telcos have sufficient means at hand for active traffic management.
What is active traffic management?
Active traffic management means that traffic can be prioritized by network operators according to criticality, just to mention one criterion. This ensures that genuinely essential services continue to function for certain key target groups. Types of transmissions that could currently be given priority include the services of all public institutions; their functional capability in such a crisis must be secure. At present, the health care system and the authorities with security responsibilities are certainly the top priority here.
A crisis raises the fundamental question of whether operators are prepared for a possible emergency. What are the crucial elements that an operator must implement under all circumstances to be crisis-proof?
The crisis very clearly demonstrates that network operators are providing an infrastructure that is critical for society and the economy. Functioning communication systems are immensely important in such times. The International Telecommunication Union (ITU) has drawn up proposals for preventive risk management and action plans for specific crises to support telcos in this difficult period. In the current crisis, the first priority is to protect employees and stabilize the business. Objectively factual communication regarding risks and the required measures to maintain the protection of employees must be assured. In particular, the people who work in positions critical for the business and cannot work from home must be provided with suitable protective equipment and instructions for their conduct. For those who are able to work from home, the infrastructure requirements relating to network and system access, hardware, and software must be established. Aided by professional collaboration tools, certain forms of cooperation can then continue on the virtual plane. This also seems to be working well when we look at the performance of the networks and the customer service of the various network operators.
How do things stand from the financial perspective?
Thanks to their business models, telcos are certainly less affected by the acute crisis than many other industries, especially manufacturing. Nevertheless, the effects are also clearly felt here and are manifold. They range from payment defaults by illiquid or insolvent customers, declining revenues (from international roaming, for example), restrictions on the availability of end equipment, or rising costs in network-related advance services to possible additional revenues in certain product lines (those that enable virtual working, for example) or services with volume-based pricing to the postponement of frequency auctions (Spain and the United States), delays in network expansion, the ban on price increases for end-customer products during the crisis (Spain and the United Kingdom), or even revenue declines because of the closure of brick-and-mortar distribution channels. There is a special case in Great Britain right now; 5G masts are being set on fire because some people believe they have clear evidence that the pandemic is being accelerated by the new wireless communications standard.
In the short term, of course, the manifold effects must be analyzed in terms of their impact on revenues and expenditures. Careful liquidity management has become especially important in this situation. The priorities of planned investments and projects must be critically reviewed.
In addition, however, questions will certainly arise as to how critical institutions and important customers or partners can be supported in the maintenance of their business operations. Possible proposals could be the granting of short-term deferrals of payment or making digital product solutions and network capacities available.
What must be done when the acute crisis has passed?
Once the crisis has ebbed, carriers will look into ways to become a bit more self-sufficient. Digitalization at all stages of the added-value chain, from the network and IT to sales and service, will be driven forward more urgently. Vendor strategies will be checked to ensure that they are up to date, and questions will be asked about the security of supply chains and possible supply bottlenecks. Companies will also be rethinking current inventory strategies and developing concepts for differentiation in terms of specific components. In addition, carriers will devote energies to the development of new offerings for their customers going beyond connectivity alone such as security solutions, IoT, smart city, e-learning, and collaboration platforms. After the crisis, the expansion of broadband availability, whether mobile or fixed, will certainly be tackled with renewed vigor so that well-structured and stable fixed and mobile networks ensure that companies are well prepared for future extreme situations. The network operators will be called upon to invest and (as well) to enter into any cooperation agreements required to close all wireless communication white spots nationwide as quickly as possible and to provide sufficient capacities in all areas. I suspect that the government will be less forgiving if, for example, conditions from certain frequency auctions are not met. At the same time, however, the government will also have a duty to create the prerequisites necessary for this to happen in the form of subsidies or accelerated official construction and site approval procedures.
How will the crisis impact the competitive situation?
The cards will be redealt among competitors, creating opportunities for all competition groups. For me, the bottom line will be more opportunities than risks for the network operators. They will be able to play the trump cards of their assets such as the network and customers’ trust in the integrity, reliability, transparency and security of the telcos’ products and services very well under the future conditions.
Is now the right time to put political demands such as a European cloud on the table and push them through?
Fundamentally yes. In many areas of digitalization, Europe is clearly lagging 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, the successful management of the opportunities and risks of digitalization will be a decisive factor in the future prosperity of nations and generations.
However, government support is needed here and now to put Europe on a peer level with the Americans and Chinese in terms of know-how, global presence, market share, and economies of scale and scope. European industrial policy should make use of a consistent regulatory framework that offers to all competitors a so-called “level playing field” on which all the players operate on equal terms and with equal opportunities. Politics and business have recognized the problem, and there are various European initiatives to address it. One example is the European data strategy of EU Commissioner Thierry Breton, whose measures and goals reflect this insight. Other examples are the European cloud cited above, the enforcement of European data protection standards established by the GDPR, or the thoughts about possible horizontal regulation instead of sector-specific, vertical regulation of individual industries. I am confident that we will make further progress on these points.