Research Note

November 2020 Essential vs. undervalued: how COVID-19 magnifies the European telecoms ambivalence

November 2020

Abstract

November 23, 2020

Like it or not, COVID-19 has negatively impacted European telecoms. On the one hand, we are all acknowledging how critical a robust Internet connection is during a COVID-19 induced stay-at-home order. On the other hand, European telecom assets continue to be undervalued and treated like commodities. Put another way, for a large majority of households, broadband services are as essential as water and electricity while investors continue to snub telecoms, which in turn have become one of Europe’s worst-performing sectors so far this year. This is worrisome because European communications service providers (CSPs) are juggling with keeping up with significant traffic increases in their broadband networks, losing roaming revenues, sustaining 5G rollouts, paying ballooning debts, and for some, preparing for a Huawei rip and replace.

Figure 1 illustrates the “COVID-19 drop effect” on the 5-year long fall of the STOXX Europe 600 Telecommunications (SXKP) index made of 22 components: Altice Group, BT Group, Cellnex Telecom, Deutsche Telekom, Elisa Corporation, Ericsson, Freenet, Iliad, INWIT, KPN, Nokia, Orange, Proximus, SES, Swisscom, Tele2 B, Telecom Italia, Telefónica, Telefonica Deutschland, Telenor, Telia Company and Vodafone Group. It’s worth mentioning that Spanish giant Cellnex and Italy’s largest tower INWIT, owned by Telecom Italia and Vodafone, are infrastructure specialists.

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