While the telecom industry is in for a bumpy ride as the economy falters, the meltdown associated with the tech...
bust from earlier this decade has inoculated many service providers against more serious dangers, according to a recent report by Campbell, Calif.-based Infonetics Research.
"If there are folks out there with very clean balance sheets, they are telecom providers," said Stéphane Téral, principal analyst for Infonetics. "Last time we were building pipes that no one was using. Today, we have the pipes people need, and people are using them."
This is due largely to the spending frenzy of the late 1990s, when service providers gambled heavily on speculative, capital-intensive infrastructure upgrades years before the demand would catch up. After service providers were burned in the 2000 telecom meltdown, leaving much of that infrastructure unused, they began investing in infrastructure only when the demand materialized, which has left them with a debt-to-revenue ratio that favors them in lean times like the present, according to Téral.
Telecoms are seeing their landline revenues erode, but more and more service providers have expanded their wireless strategies. Téral said that wireless revenues would protect these providers from landline losses because cellular service will remain a necessity for most consumers during the recession.
This factor is helping boost 2008 worldwide service provider revenues to $1.63 trillion, 9.5% growth from 2007, according to the Infonetics report, "Service Provider Capex, Opex, ARPU, and Subscribers."
"This [recession] is not the telecoms' fault -- they aren't doing anything wrong," Téral said. "This is a financial crisis that has nothing to do with telecom."
Téral noted that although wireless services were an important factor, currency appreciation against the U.S. dollar also played a significant role in the industry's sharp global rise in revenues on paper. For non-U.S. carriers, the weak dollar meant that even flat revenues in their national currencies would show growth when converted to the dollar.
There are some danger zones in the industry, particularly for non-North American and non-European carriers.
While telecoms are likely to rein in capital expenditures (at least slightly) everywhere, Russian and Asia Pacific carriers will probably have to cut capital spending in the double digits as credit becomes hard to come by, ending the spending spree of recent years that those particular markets have seen.
Those markets had not been hurt by a bust in 2001 and were seeing large amounts of brand-new infrastructure being deployed.
Also, carriers without wireless arms or at least strong wireless partnerships will have to reinvent themselves as consumers cut back, often eliminating landlines in favor of going cellular-only.
Have your own thoughts on whether telecom will weather the coming storm? Email news writer Michael Morisy