Looming economic slowdown set to stall telecom services sector growth

NEW DELHI: Multiple factors like inflation, raising of benchmark interest rates, China lockdowns and the Russia-Ukraine war are set to hamper the growth of telecom and Pay TV services globally in the first half of the year, according to an IDC report.

The telecom services industry has remained very stable throughout the Covid-19 pandemic, allowing people to communicate, entertain and do their jobs while being confined to their homes.

"The economic recovery in 2021 has boosted the growth of the market and resulted in higher-than-expected growth rates, but the same forces that pulled the market up can also push it down," said Kresimir Alic, research director, Worldwide Telecom Services at IDC.

Much like other markets, this market is not immune to changes in economic trends and "forces such as inflation and recession might quickly change the shape of the curve".

"The inflation is already happening, and the economies have started to slow down - for that reason our view of the market remains cautiously optimistic," Alic added.

In 2021, the worldwide spending on telecom services and Pay TV services reached $1.56 billion, an increase of 1.6 per cent year over year.

IDC expects worldwide spending on telecom and pay TV services to increase by 1.4 per cent in 2022 and reach a total of $1.58 billion, although with a caveat.

"Because of new circumstances that include accelerated inflation and the raising of benchmark interest rates by the central banks that will consequently lead to a slower economic growth in the years to come, the forecast has been changed," the report mentioned.

The new forecast is still optimistic, but the growth rates in its first half will be lower than what was recorded last year, it noted.

The impact of inflation in the telco services market will be stretched over the next several years.

"This is because a high proportion of users have two-year contracts with operators that guarantee stable fees until their contracts expire. That also means that the effects of inflation will initially be higher in the markets with a higher proportion of prepaid customers," the report suggested.

The current lockdowns in China and a possible emergence of new variants of the virus in the rest of the world might bring additional impacts to the market, primarily in the business fixed data services section.