Coronavirus (COVID-19)—TMT market insight

TMT analysis: The worldwide shift to remote working, video calling and online shopping and banking has brought the use of technology into focus in the coronavirus (COVID-19) crisis. While many business in the TMT sectors are surviving and even thriving, others face profound difficulties and battle for survival. In this article, TMT lawyers comment on the state of the market in key areas and consider what might happen next to expect next.

Outsourcing

Despite the impact of artificial intelligence and other forms of automation, outsourcing remains a people-centric industry so the rapid shift to working from home for the majority of organisations will have a big impact on outsourcing suppliers. Suppliers working on major deals in the early transition or transformations stages, where attendance at customer premises is critical, will be particularly affected. In these situations, suppliers are needing to work with customers to revisit project plans, milestone dates and, in some cases, the detail of the charging schedule.

Kit Burden, Partner at DLA Piper LLP, has seen major suppliers show ‘remarkable resilience’ in shifting to remote working but notes that this ‘is at the likely cost of full compliance with many of the contract obligations they will be under’, including those relation to IT security.

With the inevitable constraints on finances and capacity, some deals are being put on ice. Vik Khurana, Senior Associate at Bristows LLP, has seen a clear split: ‘Organisations are, quite sensibly, re-budgeting and re-prioritising their projects and the inevitable knock-on effect is some of those projects are being cancelled/postponed, while others are becoming more urgent to complete, especially if they have a cost-cutting driver’.

A similar divide is reported by Shoosmiths. Craig Armstrong, Partner, says: ‘we are seeing non-essential projects being postponed but IT projects related to sectors which have been less impacted or indeed essential businesses (such as the utilities and bio-science sectors) have continued. Also, projects which deliver costs savings, such as a consolidation of a number of contracts with a single supplier, are continuing at pace to realise those savings.’

The longer-term impact on the outsourcing industry remains to be seen. Customers may minimise their outsourcing in order to keep greater control in uncertain times or, conversely, they may choose to oursource further as a way to stretch diminishing IT budgets. Khurana thinks that the crisis will accelerate existing trends such as the move towards shorter-term, more ‘modular’ IT contracts, as people start to see them as a hedge against uncertainty and the risk of large or long-term commitments. However, he says that this might ‘drive revenue protection behaviours on the supply-side—making charging models, benchmarking and the like tougher to negotiate.’

Cloud

Cloud has been well-placed to survive the pandemic unscathed (in the sense that it is a service that is relatively easy to offer and maintain remotely) and to benefit from the surge in volumes generated by the mass migration to remote working. Similarly, organisations on the customer side who embraced the move to the cloud in recent years will be looking back on it as a decision well made and will be taking full advantage of their ability to scale their services up and down as the need dictates.

Early indications are that the IT budgets of large organisations will be squeesed as a result of the pandemic, but a recent survey revealed that 68% of US CIO respondents think that cloud services will become more of a priority for the budget that remains. Business still reliant on on-premises equipment and services are likely to accelerate their transition to cloud.

Simon Briskman, Partner at FieldFisher LLP, agrees that cloud is likely to be one of a number of sectors that stand to come out of the crisis in good shape:

‘The popularity of Zoom during the lockdown has already been seen and business in, say, cloud, online payments, or home delivery may well see a brighter future once we are beyond the most immediate and human concerns of the current situation.’

Fintech

Fintech has been hit hard by enterprise deals being put on hold and investors sitting on their cash but, at the same time, usage of fintech apps and platforms has risen dramatically. One Swiss-based financial services organisation measured a 72% increase in the use of its own financial apps as a result of coronavirus-triggered social distancing, isolation and lockdowns. This is borne out in evidence from across the sector.

Tom Bohills, Head of Legal at Red Deer and a fintech consultant says he has seen volumes in various securities moving onto electronic platforms:

‘A client who runs a digital marketplace for institutional lenders and borrowers in the money markets space has just seen one of the busiest months in its three-year history. As the effects of the coronavirus shutdown leak into the real economy, lending platforms will see increased activity. There is likely to be a big opportunity in both commercial and consumer debt, particularly for those borrowers who slip through the net of traditional lenders. ‘

For more, see News Analysis: Coronavirus (COVID-19)—impact on the fintech sector.

New technologies

Technologies like artificial intelligence have already been making headlines in relation to coronavirus.

On 5 March, Google’s DeepMind announced it had used deep learning to predict the structure of proteins associated with coronavirus. DeepMind provided predictions of the proteins’ structure to create a three-dimensional structure. Without using AI, DeepMind claimed that researchers would have taken many months to uncover this structure. Understanding protein structures can provide important clues to help develop a coronavirus vaccine. See News Analysis: Google's DeepMind's coronavirus (COVID-19) protein research shows cost of not using AI in emergencies.

The technology in autonomous vehicles is not yet mature enough to have been able to assist in the crisis, but it is clear that it will have a role in any similar outbreaks by, for example, delivering medicine or transporting key workers or patients without the risk of passing on infections.

Lucy McCormick, barrister at Henderson Chambers, thinks that there may be more general benefits to the industry in the longer term:

‘There is a perception that coronavirus may lead to a flight away from public transport towards individual transportation, which may in the long term benefit the autonomous vehicles sector.’

Other emerging technologies have been deployed around the world to good effect. It has been reported that drones have been used in Italy for the purposes of taking people’s temperatures and in France to warn people away from public spaces.

Advertising

The Advertising Standards Authority (ASA) on 20 March 2020 set out its regulatory approach by committing to act quickly and robustly against adverts that exploit people’s health-related anxieties and the difficult financial or employment circumstances being faced, among other things. At the same time, the ASA said it recognised the ‘existential threat’ faced by businesses and the range of media that depends on a healthy advertising market and so, where appropriate, it will reduce to a minimum its regulatory interventions.

The majority of advertisers have acted responsibly in relation to coronavirus but, inevitably, some have sought to take advantage. The ASA has set up a streamlined reporting process for coronavirus adverts and has acted fast in investigating and uphold complaints against advertisers looking to take advantage of the coronavirus pandemic.

During the first week of March, the ASA upheld complaints against Easy Shopping 4 Homes Ltd and a series of ads by Novads OU trading as Oxybreath Pro, all of which had appeared online in February. Neither of these companies cooperated with or responded to the ASA when it was investigating these matters. The ASA challenged whether the ads were ‘misleading, irresponsible and scaremongering’. The ASA was quick to ban the ads and to publish detailed rulings setting out their decision.

More recently, gambling advertising has gone under the spotlight with concerns that the financial pressures caused by furloughing and redundancy may push people into gambling. The ASA has warned gambling operators to take particular care and indicated that it will take firm action against non-compliant advertising.

For more, see News Analysis: Coronavirus (COVID-19)—What are the legal implications for the UK arts market? which includes practical guidance on ensuring that adverts are compliant.

Other sectors

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