Crisis projected to halt mobile postpaid growth

The mobile segment, not just in Brazil, will become less profitable as the economic crisis triggered by the COVID-19 pandemic will halt the migration of lower margin prepaid clients to higher added-value postpaid plans.

This migration has been a trend over the last years and its expected end will impact medium-term revenue generation, according to KPMG consultancy.

In March, 226mn mobile lines were in service in Brazil, of which 114mn were prepaid and 112mn postpaid, according to regulator Anatel. Postpaid subscriptions grew by 10mn year-over-year, while prepaid fell by over 12mn.

In an online conference on Tuesday on how the pandemic will influence the telecom industry, KPMG analysts said the impact will mainly be seen in revenue predictability, since postpaid is a recurrent source but prepaid consumers recharge only when convenient.

The experts, however, said it is still difficult to predict if massive plan downgrades will occur, as happened during Brazil’s 2015-16 recession.

In its latest report, Fitch Ratings said telecoms “will not experience the same disruption as other sectors but the outbreak will slow the migration from lower-margin prepaid to higher-margin postpaid mobile service and will scale back handset purchases and pay TV services due to reduced discretionary spending.”

According to Fitch, Latin American telcos could cut capex by up to 30% to cope with the cash burn resulting from the economic fallout.

Oliver Cunningham, KPMG partner of Digital Transformation, however, said the world that will emerge post-pandemic will be even more digital and connected and, therefore, telecom will play a leading role, which opens an important scope for strategic repositioning.

KMPG’s analysts said operators will have to establish strategies to deal with the expected increase in defaults.

And telcos will have to accelerate their own digital transformation and invest even more in digital channels and robots, among others.