Can telecoms profit from a recession?
Current Analysis has an interesting take on the present credit crunch and financial markets turmoil – it’s good for the telecoms industry. Analyst Sandra O’Boyle believes that a tightening of capex means that telcos can get back to basics – focus on competition, reducing costs and completing the transformations that have been put off in the constant sprint to keep pace with rivals.
“A greater emphasis on cash flow and a closer inspection of business margins and costs may not be a bad thing, it can even advance restructuring efforts among telcos that under normal circumstances would be difficult to achieve,” argues O’Boyle in a research note on the impact of the credit crunch on telecoms. (You will need a subscription to read the full report.)
She has a point. Much of the investments made to transform core networks and back office systems, at least in the US, Europe and advanced Asian markets, have already been done or at least committed to. This means carriers can now focus on developing and deploying next-generation IP services such as telepresence, data centre virtualization and delivering software as a service (SaaS).
The financial squeeze will reduce household spending and enterprise investments, forcing carriers to shed cost in order to lower OpEx. Carriers with too-high cost structures will be under financial strain compared to those that have gone through restructuring and have lower cost bases, thus intensifying the ongoing consolidation in the European telecom markets.
The ability to focus tightly on customer needs can provide significant new business for the carriers because growing ‘green’ awareness will significantly increase the appetite for collaboration services and TelePresence video conferencing that can reduce travel costs and increase the efficiency of a distributed workforce. Machine-to-machine services that reduce management and production costs will also become hot properties.
Next generation services will appeal to enterprises who themselves face an uncertain future. O’Boyle reckons that in 2009 enterprises will be looking for utility pricing for services like IP telephony and collaboration. This will give them the flexibility to cope with an unexpected merger or the need to lay of 10% of the workforce. And if the global economic slowdown does create a hiring freeze on enterprise IT departments, this too will be good for telcos as even more companies will look to managed services and outsourcing.
So a silver lining to the stormy clouds?
Not all analysts are convinced that IT will face such a collapse in funding. Both Gartner and Forrester reckon that the financial crisis will impact IT budgets but not catastrophically. Forrester’s Andrew Bartels is reported saying, “This is not a replay of 2001/2002.” Forrester’s predictions for US IT spending in 2009 is bullish – $606 billion next year compared to $572 billion (up 6.1%). One only hopes that these forecasts are not based on people having to borrow to buy, because they might be struggling to find a bank still standing.