Carriers face tough choices in ’09, but it may not all be doom and gloom, say industry experts

With new entrants squeezing the mobile space, cablecos pressuring telcos to lay fibre for delivery of IP-based broadband services, and Telus Corp. and Bell Canada having to invest in their HSPA network, industry experts say the slowdown in 2009 will put new pressures on carriers to stay competitive. "On the consumer side, people won't be willing to pay any more than they are now," independent telecom analyst Jon Arnold tells Tech Media Reports. "And on the business side people will want more accountability for what they're paying for - telecom expense management has become a cottage industry, and enterprises will be looking to cut deals with carriers." There's been some buzz about the US and Canadian governments' stated commitment to infrastructure spending. In the US, president-elect Barack Obama has called for improvements to the nation's broadband infrastructure as part of a proposed federal spending plan that would beef up investment in the ailing U.S. economy. In October, Prime Minsiter Stephen Harper promised to allocate up to provide $500 million in matching federal funds over five years to extend Canada's broadband network into unserved rural and remote areas. Despite these commitments, it's hard to say how much - if any - of these spends will support carrier roll-outs. If past slowdowns are any indication though people will be spending more time at home, and that might actually be good news for carriers. "As people retreat into their homes there is more of a tendency to seek entertainment there than outside," says Suraj Shettty, VP of service provide marketing for Cisco Systems. "We have no reason to think this will slow down - in fact, it should accelerate." This means that investments in delivery of IPTV - something that MTS Allstream emphasized in its 2009 guidance call - could pay back very quickly. "TV is the domain of older users," says Shetty. "Kids are on their laptops, using P2P. This will converge with higher end content coming in over IP networks. Some homes will be receiving four video streams to set top boxes." That said, money is tight, and even the tech heavyweights like Cisco are feeling the heat. The company closed shop for a week over the holidays to save money. And though Cisco has $26 billion in cash, there may be pressure from carriers to sell gear more cheaply. This extends to other vendors like Nortel Networks - whose woes are well known - and Alcatel Lucent, which lost $4.8-billion last year. In fact, a recent study from ABI Research, "Mobile Network Vendor SWOT Analysis," claims that Nortel's struggles are partly a reflection of industry trends. It notes, however, the telecom sector is faring better than other industries, and that while operators may cut spending, to date the majority of cuts have been operational rather than on infrastructure. This is certainly borne out by MTS Allstream's 2009 guidance. During the call Kelvin Shepherd, MTS Allstream's president of consumer markets, said that the company's broadband platform and IPTV "will help us to continue to compete effectively with cable." In effect, carriers will buy time with restrained operational spending to support capital intensive roll-outs. To do that, they are buffered somewhat by the traditional strengths of telecom. "Telecom is different in a slowdown," says Tony Olvet, VP communications and segments for IDC Canada. "Whether its wireless, voice, or data services, it's more like a utility. It's paid for on a monthly basis, so it's not a discretionary expense." But Olvet notes that in a major downturn companies will be forced to be practical and frugal. "They'll pull back and revisit their contracts," he says, agreeing with Arnold that TEM will take on greater importance. "The carriers have had a nice cash cow with enhanced services on the wireline side. Now customers will be looking for all-you-can-eat contracts, lower minutes - they will be very tactical, and TEM will be a part of that." On the carrier side, Olvet sees some real challenges to the incumbents from new wireless entrants. "Vidéotron is obsessed with customer satisfaction and the customer experience, and they don't want to launch a half-baked service. Globalive will play at the low end everywhere but Quebec, and though both Vidéotron and Globalive will be HSPA, in Canada these devices are pretty high end like the Bold and the iPhone. These are designed for high speed data - it's overkill." Given the fact that Vidéotron has the Quebec market, and Globalive the rest of Canada, wouldn't a partnership make sense? Not according to Olvet. "The culture is different," he says. "They might work together, but there won't be a strategic partnership. Vidéotron is a media company - they'll be leveraging the mobile channel to push out their media assets."

Carriers face tough choices in ’09, but it may not all be doom and gloom, say industry experts

News | January 5, 2009

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