Analysts give mixed predictions for telecom slowdown

The Canadian telecommunications industry is in for a rough ride, according to industry analysts contacted by Network Letter. But they aren't united in predicting how hard the sector is going to be hit."It's pretty clear that all sectors will be hit and affected to some extent," says Jay Angl, senior research analyst at Info-Tech Research in London ON. "We've been talking across our teams to have a closer look to see what the effects are so far. Among our clients we are seeing mixed results - some are in heavy cost cutting mode, and are being told to cut IT spending by a certain amount. However, for the majority it is still too soon to see how drastic the result will be."One Canadian IP communications solution provider hasn't felt any negative impact from the current financial crisis. "We haven't seen the impact just yet," Gianni Creta, VP solutions engineering at OneConnect Services Inc., tells Network Letter. OneConnect is a Toronto-based provider of hosted IP voice and data solutions. "But I'm starting to hear it from my sales team. "Certainly the overall news has been extreme: Bell Canada Enterprises' buyout is up in the air due to the company's massive debt load and a recent negative opinion from KPMG. RBC Financial Group has cut Nortel Networks stock target to $0, and Cisco Systems is shutting down operations for four days at year end due to lack of visibility into 2009."The news is not rosy for the equipment vendors," says Angl. "That said, telecom won't necessarily be the first area to target for cost reductions. In ICT there will be winners and losers, and software maintenance and licensing will get cut."Telecom research firm Ovum's New York-based chief forecaster, John Lively, has been paying close attention for many months to problems in the global financial system - and the repercussions for telecom."We started about a year ago when we saw private equity drying up," he says. "We track service providers and equipment vendors. Nortel has been getting a lot of press, but consolidation among suppliers has been going on for a while. It comes down to grow or die. The Alcatel-Lucent merger hasn't been without problems, but Nokia Siemens seems to be working out okay - perhaps due to geographic and cultural proximity - and Juniper Networks is doing pretty well. Overall, we aren't seeing a big impact on telecom yet. With the exception of Sprint the North American carriers are in pretty good shape."Matt Walker, a senior analyst with Ovum, writes in a new report titled Credit crisis brings telecom to a turning point, that "while caution is inevitable, a more aggressive strategy is advisable for those with tangible resources available."Walker argues that a country-specific telco model may be outdated, pointing out that in the past, national rivalries, regulatory hurdles, and other constraints limited cross-border consolidation. He claims that because telecommunications is characterized by significant economies of scale and scope it should be able to withstand the economic shock. However, the industry is not effectively exploiting this fact, in part because it has never been forced to."Consolidation doesn't mean an end to competition," he says, claiming that a country like Canada is in good shape as "no more than three viable, well-funded facilities-based mobile providers are needed for vigorous competition to exist within any given geography."Many in Canada would beg to differ. Bell is in a state of paralysis, on the wireless side Rogers Communications is the only GSM provider, and the regulatory environment is slow to catch up to technological change - potentially exposing the industry to unnecessary risk during a downturn.The answer may be - given enterprises' reluctance to shell out CAPEX while reducing ongoing OPEX - for enterprises to shift to hosted IP-based solutions. Bell is in this game, but will get hit by companies like OneConnect, Primus Telecommunications Canada Inc., Proximiti Inc., and Epik Networks Inc. (among others) that are offering cheaper business-centric hosted VoIP solutions."In tough times a hosted PBX might make more sense than having something on premise," says Angl. "You can bundle hardware, phones, local and long distance connectivity, all for one fee, and you have the ability to add and subtract lines as needed."Word from Gianni at OneConnect is that people are looking for services and cost reduction to be tied into the same value proposition, a trend that's likely to continue as things tighten."There will always be a need for voice and data services," he says, "but what people want is for this to be budgeted into their fixed costs on a monthly basis."

Analysts give mixed predictions for telecom slowdown

News | 11/27/2008 8:08 pm EST

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