EVERYONE IS WORRIED ABOUT THE INTERNET. SO FAR, IT´S ACTUALLY DOING JUST FINE / BARRON´S MAGAZINE

Everyone Is Worried About the Internet. So Far, It’s Actually Doing Just Fine.

By Eric J. Savitz


Comcast says video conferencing and voice over IP traffic is up 212% in recent weeks. / Getty Images 
 


The Internet is doing just fine.

With everyone stuck working and studying from home, Americans have become sensitive to any news about internet slowdowns.

We’re all using more bandwidth for video conferences and streaming, the only things maintaining any sense of normalcy in our lives. So, internet anxiety is understandable.

Last month, European Union Commissioner Thierry Breton triggered a round of hand-wringing when he tweeted that we should all stream video in lower-quality standard definition, rather than high-def, in order to “secure Internet access for all.”

In response, Apple (ticker: AAPL), Amazon.com(AMZN), Netflix(NFLX), and Google’s YouTube all announced plans to reduce their video streaming quality in Europe. And, in fact, there is some evidence that European broadband speeds have slowed, with large numbers of people working from home.

The good news is that U.S. networks are handling the traffic spikes without any major hiccups.

In a call this past week with reporters, Comcast(CMCSA), the largest U.S. internet service provider, said that its network is working well, with tests done 700,000 times a day through customer modems showing average speeds running 110% to 115% of contracted rates.

Overall peak traffic is up 32% on the network, with some areas up 60%, in particular around Seattle and the San Francisco Bay area, where lockdowns were put in place before they were in most of the rest of the country. In both Seattle and San Francisco, peak traffic volumes are plateauing, suggesting a new normal.

Almost every online activity has spiked. Comcast says video conferencing and voice over IP traffic is up 212%. Gaming downloads have jumped by 50% to 80%, with some fluctuations based on new game releases. Streaming video is up 38%, Comcast said, while linear video consumption is up by four hours a week on average per household, to 64 hours. Video on demand is up 25%, year over year.

Tony Werner, head of technology and product at Comcast Cable, says it has a long-term strategy of adding network capacity 12 to 18 months ahead of expected peaks. He says that approach has given Comcast headroom to smoothly absorb the added traffic. The company hasn’t requested that video providers or anyone else limit their traffic.

AT&T(T), the No. 2 U.S. internet service provider, likewise asserts that its network is performing “very well” during the pandemic. This past Wednesday, it said, core traffic, including business, home broadband, and wireless, was up 18% from the same day last month. Wireless voice minutes were up 41%, versus the average Wednesday; consumer home voice minutes rose 57%, and WiFi calling was up 105%.

Over the past three weeks, the company has seen new usage patterns on its mobile network, with voice calls up 33% and instant messaging up 63%, while web browsing is down 5% and email is off 18%.

Verizon Communications (VZ) also says its network is handling the traffic well. One telling stat: The carrier says that mobile handoffs, the shifting of sessions from one cell site to another as users move around, is down 53% in the New York metro area, and 29% nationally; no one is going anywhere.

One takeaway from this strange period is that we’re seeing clear validation in moving corporate computing to the cloud.

The Barron’s staff works remotely thanks to a wide range of apps, from Slack Technologies(WORK), Okta (OKTA), and Alphabet’ s (GOOGL) Google. But enterprise-cloud software companies won’t be immune to a downturn, and we’ll get vivid reminders of their vulnerabilities as first-quarter earnings start arriving in the next few weeks.

Canaccord Genuity software analyst Richard Davis thinks first-quarter results will be fine—most cloud-based software companies have recurring business models, and the economic plunge didn’t begin until March. But he also thinks cloud companies will be withdrawing their full-year guidance—if they haven’t already—and that there could be a plunge in billings, as new business activity grinds to a halt.

“Investors expect the content of the next few earnings calls to be some form of ‘things were good until March,’” he wrote this past week. “A few minutes later, most companies will announce they have withdrawn guidance.”

Davis expects investors to focus on a likely billings collapse, which will bring down future revenue growth for a group of stocks already trading at lofty revenue multiples. He says some companies could miss June-quarter bookings estimates by 90%.

Davis adds that once we get past an ugly June quarter, the second half of the year could see a wave of consolidation. Large companies such as Amazon, Microsoft (MSFT), Alphabet, Oracle (ORCL), Adobe (ADBE), and Salesforce.com(CRM) may start shopping for bargains.

Potential targets could include Service Now (NOW), Atlassian(TEAM), Slack, Dropbox (DBX), Avalara (AVLR), Twilio (TWLO), Okta, Elastic (ESTC), HubSpot (HUBS), Zendesk(ZEN), Smartsheet (SMAR), and Sprout Social (SPT).

“Strategic buyers could step up as soon as late summer once we determine the depth of this economic hole,” David wrote in a research note this past week. “These firms will buy the quality companies at a discount.”