Top 10 effects of recession on the telecom industry across the world

One of the most promising Industries named Telecom is rapidly losing its luster due to The World is Flat effect. It is my experience gathered through my decade’s long presence in this sector and my association with the professionals across the world, tells the very sordid state of Telecom business across the globe.

In India, we feel, telecom is one such field that remains unaffected despite recession, but reality tells other side: Here are the some of the facts I come across in telecom business due to recession:

 

  1. Sales on downward curve:  Mr. J Nair was on cloud none in 2007 as he over achieved his target and got a sizeable jump in salary. He was pretty confident to achieve his target in coming years, as he saw the leads are pouring in. But, slowly, different situation has started to unfold. He now observes that most trust clients are now reluctant to renew the offers .Fluid of leads is getting dried up .Now he is facing very tough situation as most of the customer are not giving new orders , even in many cases they are reducing the existing usage plan . Mr. Nair, has ended up with 50% of his set target. Recession has put a big dent for future expansion plan of many corporate because the less demand for telecom facility. Moreover, corporate is working hard to reduce the it/telecom budgets. Now , he is looking at the mast of Telecom tower and counting the days for recovery of this sector .
  2. Expansion on Hold: Across the regions, profit margin is highly impacted due to recession and most of the Telcos put the expansion plan on hold.
  3. Dubai effect on telecom: Spectacular growth in telecom observed inDubai due to booming real estate sector. According to David Rich , my linked in friend ( From Verizon Business ) , there was great demand for telecom bandwidth and solution for coming real estate sector likePalmIsland . But , later , due to recession , real estate sales dwindled to nothing  . Further credit dried up for future expansion , investors have disappeared, tourism is down, and many such projects across the middle east have been indefinitely delayed, suspended, or simply cancelled. All these effect put big dent on telecom projects, expansion. Many big ticket telecom orders postponed or cancelled.
  4. Sharing infrastructure for other operators: It is good for new players for minimum capital requirement for launching the business. And for existing players more revenues from other players. Recession expedites the process of infrastructure sharing. We see more of them are outsourcing certain operations, and sharing infrastructure with other carriers where appropriate.
  5. Telecom business in North America: The Capital expenditure reduced significantly inNorth America for network expansion. Still investments are pumped in for adoption of new technology based network. The deployment of high speed fiber optic backbone yet to get more attention and budgeting yet are severely underserved and overlooked in this type of environment.
  6.       Dwindling ARPU for wireless customer: Wireless market clocking the negative growth for last 4 quarter. Interesting part which answers the question is the wireless markets ARPU has dipped to the tune of 22% in GSM and 33% for CDMA. Margins are impacted due to fierce competition from new players.
  7.       Shift from ILEC to CLEC domain (America and Canada): This recession has taught a hard lesson to ILEC . Corporate clients stills are loyal to ILEC , but CLEC takes the route of product innovation and better support for garner a sizable share in conventional customers who are earlier stick to CLEC. . The CLECs bringing SIP (Session Initiation Protocol) trunking to market will help customers eager and willing to adopt this technology to their IP convergent network. SIP trunking may not be as profitable as the Incumbent Local Exchange Carriers’ products however the increased efficiency and reliability should really impress any prospective customer of a CLEC.
  8.       Broadband penetration on hold: Due to uncertainty  of return, investment for network deployment is put on hold. In India, major corporate postpone their investment plan till the market recovery. More emphasis is put for utilization of existing network assets.
  9. Locus of growth in telecom shifted to Emerging economy: 8% annual growth on wireless subscriber base and it will  touch 5.85Billion by 2013(Source: Pyramid Consulting ) and 90% growth will be contributed by emerging economy .
  10. Values adopted by Telco to overcome the recession blues : Five major areas where telcos are putting more importance to overcome the recessionary pressure are a) Customer Delight : customer first initiatives b)Consolidation : they are working on core competency area where they can claim premium because of their reach , service quality ,c) More emphasis on revenue assurance , cross selling and up selling with out putting more time and money for new territory expansion , team building , new product launching . They have plan in place to start all these when market will start looking promising . d) Improving EBITDA and margin though cost cutting measures and consolidation of many operations.

Days ahead in Telecom:

(1)Telecom will find some unexpected competitor from different domain and industry. (2) Years back , when I was giving my presentation to IIT kahragpur , then I mentioned possibility of emergence of competitor , we never thought of , it was Google . As they are main player on content space , for them is  very logical to venture into telecom as it would complete the whole value chain . In recent publication, Google has declared that we are into telecom equipment . So telcos  must be  ready to face challenge from your supplier or collaborator .

(4) Number portability would put more stress for Telcos to maintain their profit margins . As customer churn would be maximum. They need to be innovative and at the same time should propagate the value on real time , else customer would switch to other operator .

(5) More merger and acquisition : consolidation in telecom space would be more prominent in coming days . In nest five years , more merger would take place .

(4) More emphasis on margin and very tough time to raise the investment for new telecomm venture .

(5) Incumbent trap: Incumbent would face tough time in days ahead as new players would initiate the price war to penetrate in the market .New players would be more agile to adopt the new technology. (Mostly IP based wireless technology)

(6) More check would be there on regulatory font as more players would be fighting for limited spectrum.

 ( This views are personal and based on my interactions with leading telecom consultants across the Globe ) 

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2 responses to “Top 10 effects of recession on the telecom industry across the world

  1. thanks very much for the information given

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