Telecom revenues likely to take a hit as pandemic drives business closures

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Canada’s telecommunications companies will likely take a hit to their revenues as the economic effects of the coronavirus pandemic drives a wave of business closings and bankruptcies.

Desjardins analyst Maher Yaghi predicts telecom companies will see revenue from phone and internet lines decline by 40 per cent in the first five months as businesses that didn’t survive the economic rout disconnect those services. That will be followed by a 20-per-cent reduction in the next five months, Mr. Yaghi said in a note to clients.

Meanwhile immigration, which has driven significant growth for the telecom industry as new residents purchase phone and internet plans, is expected to slow this year as most countries effectively shut their borders, according to Mr. Yaghi.

The financial impact comes despite the fact that telecommunications services have become more vital than ever. Canadians have shifted to working, learning and entertaining themselves at home amid a nationwide push to stop the spread of the virus. BCE Inc.'s Bell Canada says voice traffic on its network has surged 200 per cent while internet traffic has risen by 60 per cent in the daytime and 20 per cent at night.

“While broadband will remain an in-demand service, no business is immune to economic cycles,” Bank of Montreal analyst Tim Casey said in a note to clients. Revenue, free cash flow and earnings before interest, taxes, depreciation, and amortization will likely shrink across the sector, Mr. Casey said.

However, Mr. Yaghi said predicting the full economic impact of a rapidly evolving global pandemic is challenging. For his own projections, he assumed that Canada’s lockdown will last a total of four months.

“The situation is still very fluid," Mr. Yaghi said. “If the situation takes longer to resolve, you could have more impact. If the situation gets resolved sooner you could have less impact."

On Wednesday, Cogeco Inc. withdrew its financial guidance for its 2020 fiscal year, citing uncertainty around the duration, magnitude and economic effects of the COVID-19 pandemic.

“It is not possible at this time to reliably estimate the impact of the pandemic on the financial results of the corporation for the remainder of the fiscal year,” the company said in a statement, noting that it plans to reinstate annual guidance once the situation has stabilized.

Other telecom companies are also expected to remove their annual guidance or revise it downward, Scotiabank analyst Jeff Fan said in a note to clients.

Companies such as BCE Inc., Rogers Communications In. and Quebecor Inc. will likely see their media divisions, which rely on advertising revenue, hit especially hard, Mr. Yaghi said.

“People are watching TV, but advertisers are not in a position to advertise,” Mr. Yaghi said. “In the current economy, who wants to advertise when the consumer is not in the mood to spend other than on getting food right now?"

Although the economic rout will eventually pass, some of the effects of the pandemic on the telecom sector could be long-lasting, analysts say. Trends such as online shopping or working from home, which were already gaining traction, are likely to accelerate.

“We think the crisis has reinforced the importance of network investment,” Mr. Fan said, adding that, on the whole, Canada’s telecom networks have “held up well."

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