The telecommunications sector has been identified as a key enabler to stimulate the world economy. This is despite the higher cost of capital for investment, say the International Telecommunication Union (ITU) and international consultancy Frost & Sullivan.
Recently, the ITU released a report, “Confronting the Crisis”, which points out that, although financing costs for telecoms operators are on average 3% to 4% higher on an annual basis, savvy operators can take advantage of the economic turmoil to reposition their services for the upturn.
“Funding is still available for players with sound business models, established demand and early projected cash flows. Alternative sources of financing are now needed, with a growing role for government financing and economic stimulus packages,” the ITU report says.
Saverio Romeo, a Frost & Sullivan ICT analyst, says the telecoms sector will be hit by the recession in two main ways.
“First, due to the lack of credit in the global economy, investments will fall in the beginning of 2009. Investments related to costly projects, such as acquisitions, will feel this drop intensely. Second, consumption will fall as people move away from wants and focus on their needs. This will reduce the uptake of innovative services,” he says.
Romeo points out that service providers are already trimming their operations. Since November, Vodafone and Telecom Italia have announced mid-term cost reductions of £1 billion and two billion euros, respectively. BT and Virgin Media have both cut jobs, the former retrenching 10 000 employees, while the latter reduced its workforce by 2 200.
ITU general-secretary Hamadoun Tour'e, speaking in Barcelona, at the World Mobile Congress, said. "Having contributed consistently as a high-growth sector in its own right, ICT can now power economic recovery across all sectors. Along with stimulus packages put together by governments, the ICT industry must continue to invest in infrastructure and the roll-out of cost-effective services, such as next-generation networks."
Tour'e added that innovation is the key to recovery.
Government commitments
Many analysts contributing to the ITU report underlined the need for ICT as vital services. They suggested fixed-mobile substitution and consumers' decision to switch to mobile telephony may gain momentum in developed markets during a prolonged recession.
The report also notes that long project lead times for the satellite industry mean it has been less affected in the short-term, with strong recent growth in demand from developing countries.
The ITU report says several administrations have announced commitments to invest in their national backbone infrastructure. Others, such as the European Union, have included the roll-out of broadband networks in their economic stimulus packages.
Romeo elaborates on this, saying many national governments and super-national organisations have come to view the telecoms sector as a critical means to overcome the crisis. For example, the European economic recovery plan places a huge amount of importance on broadband infrastructure, ICT services and sustainable telecoms.
“Even the European Union has committed to an immediate investment of 200 billion euros to implement 'public-friendly' legislation. From 2009-2010, the EU plans to invest 1 billion euros for the development of 'high-speed Internet for all' with the aim of achieving 100% broadband coverage across the EU by the end of 2010,” he says.
The ITU report finds that, although by early 2009 some operators had cut capital expenditure (capex) by 10% to 15%, many telecommunication companies acknowledge that investment is vital to maintain quality of services. Growth rates in capital expenditure by regional mobile phone operators may slow down, but capex is unlikely to decline on a global basis. Operators are instead focusing on adopting a more rigorous approach to control costs and increase operational efficiency.
The report states that equipment vendors may be first in the firing line of cuts in investment, but soaring growth in mobile telephony in developing countries has not yet been affected by the crisis.
“Large emerging markets, including Brazil, India and Nigeria, registered record subscriber additions in September and October 2008. Mobile operators are generally better placed to weather the downturn than fixed operators, as capex accounts for a smaller proportion of their cost base and the incremental cost of upgrades to their networks is low,” the ITU report states.
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