Clifford Chance

As economic conditions continue to be impacted by the COVID-19 pandemic, the technology, media and telecommunications (TMT) industry, like many others, has been forced to try and reinvent itself by enhancing synergies across the sector and prioritising 'human' and 'digital' connectivity during the lockdown period.

To fully understand the impact of the pandemic in the TMT industry, we examine select sectors, highlighting notable changes and trends to monitor.

MEDIA & ENTERTAINMENT 

The humanisation of digital interactions

In the media and entertainment space, shifting consumer preferences for a combination of human and digital interactions has resulted in companies reinventing themselves in order to be placed at the forefront of the market. Rakuten Viki, an online video streaming platform, in a bid to create real-time digital experiences for its customers, modified its app's 'timed comments' tool to allow viewers around the world to communicate with each other whilst streaming. This has contributed to a 50% increase in Viki's subscription (> 15million subscribers) during the pandemic. Meanwhile, one of the success stories of lock-down, video conferencing platform Zoom, saw an exponential increase in the average daily use of the platform at the height of the pandemic reaching 300million - up from 10million in December 2019. This was driven both by its ease of use and innovative features as well as smart business moves such as quickly lifting its 40-minute meeting limit on the free basic account for schools around the world.

Examples like this show that changes in consumer appetite and entertainment have created a need to humanise digital interactions and with people having the choice to work from home, companies willing to invest in digital acceleration and humanising digital interactions are likely to benefit post COVID-19.

Cross-sector synergies

During the peak of the pandemic, as people sought new learning experiences and sources of entertainment, notable synergies occurred cross-sector. For example, learning synergised with entertainment through innovative platforms/apps such as Korea's Weverse, an app that hosts multimedia content and K-Pop artist-to-fan communication, now modified to allow fans/subscribers learn Korean from celebrities such as BTS,  a popular K-pop rock band, as their tutor or PBS kids an entertainment app which has adopted educational shows/TV series designed to improve children's general knowledge and academic skills. Riding on the wave of home fitness and wellbeing, Lululemon Athletica, a yoga wear specialist company, acquired Mirror, an interactive subscription-based home fitness tech start-up, for USD 500million. These synergies have created a positive outlook for end-users and broadened the definition of pure entertainment which now includes educational and learning experiences.

Post COVID-19, we expect more synergies across the sector as market confidence increases and companies find innovative ways to meet the ever-evolving consumer needs and demand.

TELECOMS

Increase use of broadband and private 5G networks

Remote working and home-schooling have resulted in the need for quick, stable and reliable broadband services, connectivity has never been so important. Post COVID-19, it is likely that remote working will continue to be implemented as an option for many employees as the culture of work shifts towards allowing such flexibility. This provides opportunities for telecom providers to increase revenues by strengthening their broadband offerings either by creating new innovative products or offering upgrades. Furthermore, with the planned (albeit delayed) roll-out of 5G, it is also likely that some companies will opt for private 5G  local area networks (LANs) as they offer dedicated bandwidth with reduced risk of congestion, enhanced customisation and increased security via full control over operating methods.

However, Covid-19 has caused additional challenges for telecom operators.  Spectrum auctions have been postponed, operators have had to fight online misinformation campaigns claiming 5G causes Covid-19, and the regulatory approaches pertaining to tenders for licences, frequency ranges, minimum quantity of base stations, population coverage requirements amongst others, differ from country to country making it difficult for operators and investors in 5G to quickly and efficiently roll-out 5G technology. For example, in the United Kingdom (UK), concerns regarding planning restrictions (such as the height of telecoms masts not being more than 20metres to 25metres tall), has been an issue. That said, in July 2020, the UK government confirmed it will push ahead with its plans to reform planning law and make it easier for industry to share and upgrade mobile phone masts. In effect, speeding up the rollout of 5G technology.

TECHNOLOGY

Rise in M&A deal activity

M&A activities became bearish during the pandemic. Q1 2020 saw a significant decline in tech investments as some investors played the 'wait and see' game whilst focusing on short-term capital preservation. However, from Q4 onwards, we expect an improvement in tech deal activity as (i) a backlog of IPOs wait to list (for example, data analytics firm Palantir, Cloud data management firm Snowflake, videogame engine maker Unity, amongst others); and (ii) investors turn to technology to improve or expand on their existing business capabilities.

CONCLUSION

As the world evolves and the new normal sets in, businesses in the TMT sector, particularly in the tech space, will need to be able to quickly adapt, synergise, and innovate to be at the forefront of the market and how quickly businesses can do so will be a great determinant for survival post COVID-19.