Financial crisis will hit the telco industry
At BuddeComm we have conducted a quick and dirty ‘financial crisis’ survey across the telecoms industry.
There is a clear divide between developed and emerging markets. There was serious concern amongst the latter group (Africa, some Asia, ME), but they had not yet encountered any serious decline in all instances these markets are still growing, be it at levels a few percentage points lower than before the crisis started. Our researchers have already reported on this in some detail. See: Global Analysis - The US Financial Crisis and the effects on Communications and Oceania - Analysis - Impact from the global financial crisis
The story in the developed market was rather different. Some operators (not all) in Europe and the USA are recording drops of between 20% and 30% in mobile phone usage, this has not yet occurred outside these markets, however the situation in Japan is somewhat unclear but indications are also pointing towards very serious drops. Across these markets there are a large number of enquiries re downgrading of broadband subscriptions, cancelling of pay TV services, rationalisations of telecoms accounts, etc. Luckily for the operators many contracts run for 12 and 24 months, but nevertheless the trend is clear. In the business market it looked like many companies who are reviewing their costs have put telecoms and IT on their review lists (IT perhaps even more so than telecoms).
How this will play out depends largely on the how the market develops over the next 3 to 6 months (when and where it hits bottom).
This is a snapshot only - there is no indication that the overall market is actually declining by 20% at the moment, but it gives an idea of how the crisis is affecting the industry.
Vendors are reporting delays and even some cancellations of infrastructure contracts. At a minimum all major contracts that require refinancing are reviewed and additional securities are required by the financial institutions involved in these investments. This seems to apply across the board - mobile, fixed, IP, etc.
However, it appears that on the vendors side the mobile handset manufacturers are the most affected. They have experienced a decline somewhere in the vicinity of 20% in new handset purchases over September/October.
They believe that this might stabilise over the next few months but, if the bad news continues, in some sectors drops of 50% are to be expected.
To date online advertising has seen a decline of only a few percentage points, but the mood is very grim as the industry braces itself for a sharp decline in coming months.
Some more positive reactions and observations include:
- An increase in demand for VoIP; however, from a whole-of-industry perspective, that would produce a further overall decline in call revenues.
- New government contracts/funding might kick in; this might cushion the blow, but it may take some time to happen.
- A chance to finally get better (wholesale) business models from incumbent mobile and fixed telcos.
- At BuddeComm we are noticing an increase in activities in e-health and smart grids.
- Opportunities for the more savvy operators in the market.
- There are also some interesting merger and acquisitions in the pipeline.
Sadly, very few of the people we spoke to believed that the crisis will last less than three to five years.
Paul Budde
See also:
November 3rd, 2008 at 2:28 am
[...] “Financial crisis will hit the telco industry” - I think the interesting observation mentioned in this promotional summary is that the emerging markets are more concerned with the potential implications of the crisis on their telecom sectors, yet the developed economies are those who are currently taking the hit; I keep on thinking whether better information infrastructure made the developed economies more exposed to the financial crisis - what do you think? As if to illustrate this observation - “Indian mobile users ignore economic gloom“. [...]