Around the world, people are staying home to combat the deadly spread of COVID-19. That’s catastrophic for certain industries, from airlines and cruise lines to restaurants and retail malls.
But as always in capitalism, there are also winners. And few stand out better than Internet-related businesses that can be conducted from home. They include owners of networks and their technology suppliers to companies writing applications and providing entertainment.
A month ago in this space, “China and COVID-19: A Lift for 5-G?” I highlighted the earnings opportunity for China’s Big 3 telecoms China Mobile (941, CHL), China Telecom (728, CHA) and China Unicom (762, CHU), as consumers and businesses ramped up use of online applications.
Since then, China Mobile has constructed more than 50,000 5G base stations and launched commercial services in 50 Chinese cities. It’s also attracted some 1,900 partners to its 5G Innovation Center and Industry Digital Alliance, guiding manufacturers to launch 32 devices using the technology.
The company has also developed 200 “critical capabilities” for artificial intelligence through 100 plus 5G joint projects. That includes 5G smart manufacturing, remote medical services and automated mining, combining advanced robotics applications with the low latency its new network makes possible.
On the consumer side, China Mobile started the year with 2.55 million 5G “package customers,” a tiny fraction of its nearly 1 billion users that mostly use its 4G network. By the end of February, the number had grown to more than 15 million, with robust average revenue per user growth of 6.5 percent.
During the Q4 earnings and guidance call this week, management affirmed plans to accelerate 5G network growth, as well as related Internet of Things business. To that end, it will accelerate 2020 capital spending by 8.4 percent, with 55.6 percent of the total directly related to 5G efforts including network and ecosystem upgrades and building foundations for digital society development.
Management also acknowledged for the first time that the COVID-19 “epidemic has bolstered the growing demand of businesses and consumers going online and using more digital and cloud-based services.” Expansion efforts should get a major boost as the Chinese economy ramps up again, but with a greater effort to increase digitization.
China Mobile’s goal is 73 million 5G users by the end of 2020. That will accelerate revenue growth well past the 0.5 percent in 2019, the amount depending on how fast the country recovers from COVID-19 fallout.
The US is, unfortunately, at an earlier stage of the pandemic. But China Mobile’s 5G boost nonetheless augurs well for leading broadband and wireless services provider Verizon Communications (VZ).
On March 12, the company raised its 2020 capital spending guidance by $500 million to a range of $17.5 to $18.5 billion, largely to accelerate 5G. But management also said it had yet to see a “measurable increase in data usage” resulting from COVID-19.
Flash forward a week later and Verizon has reported a 75 percent increase in online gaming, 30 percent greater usage for VPN (virtual private networks), 20 percent more web traffic and a 12 percent gain in streaming activity. CEO Hans Vestberg also notes the company has been delivering more than 9 million text messages and 800 million phone calls every day, with conversations averaging 33 percent longer than normal.
Management has also worked to mitigate negative aspects of COVID-19’s economic fallout by offering lower priced Internet and data plans for consumers. And it’s increased billing flexibility to keep customers connected.
This week, the US Federal Communications Commission delayed its long-awaited auction of licenses for 5G wireless spectrum by one month to July 23, blaming complications from COVID-19. The decision, however, may actually widen the company’s financial advantage bidding for what it wants.
That’s because a likely recession will pressure credit at rivals, of which only AT&T (T) is rated investment grade. Verizon actually was able to sell $3.5 billion of debt on March 17 at the height of the bond market panic, including March 2050 bonds at a coupon rate of only 3 percent.
Verizon has 5G Labs in New York City, Washington D.C., Waltham, Mass and two locations in California, Los Angeles and Palo Alto. These work directly with businesses and local startups to develop 5G applications for a range of sectors, including healthcare, “smart” retail, transportation and remote manufacturing.
The company’s partnership with units of Samsung, Motorola and Qualcomm has demonstrated 5G peak speeds of 4.2 gigabits per second by using “carrier aggregation.” The technology combines eight channels of spectrum and will be available on Verizon’s network as Motorola rolls out its flagship 5G smartphone this year. The company has also launched Mobile Edge Computing with Amazon (AMZN),
Internet of Things and other applications spurred the return to growth in enterprise sales last year. And they’ll be key to accelerating Verizon’s revenue growth from the low to mid-single digits the next couple years.
According to Bloomberg Intelligence, 46 percent of the 5G “sales opportunity” is from enterprise solutions. Of the rest, 14 percent is from fixed-wireless access, with 12 percent and 7 percent from consumer price and volume increases, respectively.
Verizon Ultra Wideband’s use of fiber and concentrated small cells to drive low latency has meant a slower rollout of 5G service so far than either AT&T or T-Mobile USA (TMUS). That won’t matter this year for two reasons.
First, low latency provides a potentially insurmountable advantage over rivals’ systems in the enterprise market. Second, mass market 5-G phones won’t be available until second half 2020, by which time the company’s 5G and fixed wireless offerings will be available nationwide.
As for COVID-19 recession protection, Verizon will generate some $40 billion in free cash flow the next two years. That’s after industry leading CAPEX of $35.5 billion. And it’s enough to pay the dividend and cover all maturing debt through 2022 with several billion to spare.
- The Year the Internet Thought I Was MacKenzie Bezos – WIRED
- Easy ways to get the fastest internet connection possible in your home – Komando
- Elon Musk says Starlink internet private beta to begin in roughly three months, public beta in six – TechCrunch
- Verizon is canceling home internet installations during the pandemic – The Verge
- Ethiopia’s internet shutdowns are disrupting millions of lives – Quartz Africa
- How to check if your service provider is throttling your internet – CNET
- 8 charts on internet use around the world as countries grapple with COVID-19 – Pew Research Center
- How to boost your home internet speeds while you’re stuck at home: Tech Support – Yahoo Money
- Welcome (Back) to the Appointment Internet – New York Magazine