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Coronavirus Turmoil Takes a Toll on Global 5G Rollouts

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The coronavirus (COVID-19) pandemic, which has already resulted in considerable human suffering and a major economic disruption, has rattled investors across the globe. The effects of production cutbacks in China have been felt by businesses, given the Communist country’s key role of an intermediate goods provider in global supply chains. The short-term impact on less-dependent economies is expected to be relatively mild, with the exception of the decline in confidence and weaker external demand that will moderate growth prospects.

On Thursday, all the three major U.S. stock-market indices tumbled more than 9% as Wall Street extended its panic sell-off, with the S&P and the Nasdaq joining the Dow in entering a bear market. By close, the S&P dropped 9.5% or 260.74 points, marking its largest percentage decline since the Black Monday crash of Oct 19, 1987. Also, the Dow’s 9.99% decline for a drop of 2,352.60 points was the biggest since 1987.

Where Does Telecom Stand?

The contagion has far-reaching impacts that extend beyond an individual’s health. The economic impact is being felt in sectors ranging from transportation to telecom and retail. The worldwide launch of 5G networks has been delayed due to government measures to stem the spread of the virus. Even China that had turned 5G into a national priority with the goal of having countrywide networks and services well ahead of other nations is feeling the heat with 5G focus taking a backseat.

Yesterday, the Federal Communications Commission (“FCC”) announced the conclusion of bidding in Auction 103, which made 3,400 megahertz of millimeter-wave spectrum available in the Upper 37 GHz, 39 GHz and 47 GHz bands. This is one more significant step the FCC has taken toward maintaining U.S. leadership in 5G. The FCC is looking forward to building on this with the 3.5 GHz auction, which is scheduled to begin on Jun 25, and the C-band auction, set to begin on Dec 8.

By making more low-, mid-, and high-band spectrum available, promoting the deployment of wireless infrastructure and modernizing regulations to advance fiber deployment (the three components of the FCC’s 5G FAST plan), the FCC is enabling U.S. consumers to reap substantial benefits from the next generation of wireless connectivity. At the same time, Commissioner Jessica Rosenworcel called on the FCC to take aggressive action in response to COVID-19. She said that the coronavirus is exposing hard truths about the digital divide but the FCC has the power to help.

Ecosystem Dynamics

The spread of 5G breakthrough is two-pronged, networks must be deployed, and devices that can use those networks have to be developed and sold. The rollout of 5G wireless networks is showing signs of slowing down, denting near-term sales prospects for networking equipment makers. The ‘currently-missing’ momentum could potentially delay access for some consumers to super-fast data speeds together with low latency and enhanced coverage.

Limited 5G service in select cities has already begun, though the United States still has a long way to go to reach full potential. Verizon Communications (VZ - Free Report) , AT&T (T - Free Report) , Sprint Corp. and T-Mobile US (TMUS - Free Report) started providing 5G in multiple cities across the country in 2019, and the technology is expected to become increasingly common in 2020, especially in metropolitan areas. That said, AT&T is suspending data caps for broadband Internet customers as employees face new work-from-home policies from U.S. companies in a bid to mitigate the spread of the virus. While the telecom giant did not speak on behalf of any specific supplier, it hasn’t seen a significant impact on its supply chain yet.

Germany’s Deutsche Telekom (DTEGY - Free Report) warned of a possible disruption in its supply chain in the network equipment sector due to the outbreak. Huawei, Ericsson (ERIC - Free Report) , Nokia, Xilinx and Juniper are among the 5G suppliers to hit a slow patch. Meanwhile, chipmaker Qualcomm (QCOM - Free Report) predicts the virus outbreak to eat into its profits by impacting handset demand and supply chain.

The chart below shows the share performance of leading telecom operators compared with the S&P 500 in the past three months.

Road Ahead

As we know telecom services typically show a weak correlation to macroeconomic factors because they are deemed to be necessities. The unrelenting spread of the coronavirus is endangering global electronics supply chains, raising the possibility that planned 5G wireless deployments could be at risk. The threat of production shutdowns in China is especially worrisome, given global dependence on it for wireless infrastructure such as base stations and 5G radio access network equipment. U.S.-based wireless carriers are in the midst of national rollouts but consumers are unlikely to experience the faster millimeter-wave 5G in their daily lives, at least in the near term.

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