Service providers are businesses that operate in the global economic ecosystem, and when there are convulsions in that ecosystem, provider planning and performance will clearly be impacted.
The challenge for network operators is to balance two critical factors:
Service provider markets are multi-dimensional. In a customer sense, they include both enterprises and consumers, and in a service sense, both fixed and mobile. The multiplicity of dimensions creates an opportunity for operators to shift their economic focus to optimize their performance in a downturn, but the multiplicity also makes choosing a path more difficult.
Consumer and enterprise recession-resistance differences
Basic communications services tend to be relatively recession-proof. Charting the growth in mobile or fixed call-minutes by year and plotting in economic downturns shows that there is very little impact. Communications, at least voice calling, is considered an essential utility and is sustained even in very tough times. There is also some evidence that television, even premium channels and video on demand, are somewhat immune to economic downturns. The substitution of family "passive" entertainment at home for other forms of entertainment will normally generate a net savings. All of this means that a crisis in consumer confidence is less likely to impact communications services and service providers.
The enterprise side of the business is more complex. Most enterprises plan on a three-year cycle and procure network services with an average contract life of about 27 months. In any given year, about 40% of enterprise buyers are reconsidering service purchases and would be likely to think about changes -- in service plans or even in providers. The historical indicators cited by Wall Street research seem to show that pricing pressure on services is noticeably greater in difficult economic times, reducing the profit margins on enterprise services.
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p>A more profound impact of downturns on enterprises is the impact on their project planning cycle. Most enterprises do technology planning starting in September or October for the following year. When a downturn occurs in that period, or lasts into it, the enterprise is likely to raise ROI targets on projects to reduce their perceived risk. That makes projects harder to justify, puts pressure on the service and product prices associated with the project, and reduces project budgets overall.
The impact of this on technology spending can be seen by looking at IT spending trends during and after recessions. There is not a strong correlation between upturns or downturns in IT spending and recessions during the recession period itself. But in modern times, IT spending has dipped between one and three years after a recession. This shows that project budgets impacted by the recession slowed during the time when those budgets would normally have funded purchases.
Three planning steps to buyer needs
Service providers cannot change overall economic cycles, and they cannot convince buyers that these cycles don't matter, so it is important that they plan their technology deployment and service offerings to match the likely priorities of the buyer during difficult times. Analysis of buyer behavior during the downturns of the past suggest that there are three key steps to take.
Recession-based technology choices
The best technology path to support these three choices is obviously more subjective, but there seem to be three critical priorities here as well.
Economic problems in modern times are far less likely to result in the persistent crashes of the 1800s and early 1900s because governments have far better tools to stimulate their economies. That means that an upturn can often follow downturns very quickly. A dip in IT spending resulting from a recession in the 1980 period was followed by the most rapid rise in spending ever experienced in modern times. Planning and prepping infrastructure during a downturn positions you to minimize its effects and maximize your success in the recovery period.
<About the Author: Tom Nolle is president of CIMI Corporation, a strategic consulting firm specializing in telecommunications and data communications since 1982. He is a member of the IEEE, ACM, Telemanagement Forum, and the IPsphere Forum, and the publisher of Netwatcher, a journal in advanced telecommunications strategy issues. Tom is actively involved in LAN, MAN and WAN issues for both enterprises and service providers and also provides technical consultation to equipment vendors on standards, markets and emerging technologies. Check out his SearchTelecom networking blog Uncommon Wisdom.
