3 recession survival steps for telecom service providers

As the economy settles in for an extended recession, telecom service providers can prepare their businesses to not only survive the global economic downfall, but to pull through in a strengthened position. CIMI Corp. President Tom Nolle offers three steps to prepare service providers for the impact of the recession ahead, and discusses how to use technology to help them.

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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:

  • They are "economic citizens" who must follow the broad economic trends in the long term
  • Their planning cycle is typically far longer than the typical economic downturn, making them less vulnerable than shorter-cycle businesses.

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.

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.

  1. Sustain your brand in the market. That means ensuring you remain a visible choice and trusted advisor to your customers even if there is a smaller chance of immediate success. Failure to sustain brand credibility is the usual cause of loss of market share during the upturns that inevitably follow a difficult market period. Brand protection also means taking effective measures to counter competitive threats.
  2. Build for agility. While there are general consumer and enterprise behaviors that normally accompany a downturn, there are also major differences in the details. It is very unlikely that a single strategy created at the beginning of a problem period will be the optimum choice for the whole interval of a downturn. In many cases, it may not be optimum at any point. Success in troubled times usually comes from tuning offerings to the issues that are most relevant to buyers at any given point, and that means a more flexible approach to service creation and deployment.
  3. Leverage relationships to expand your service portfolio. The service provider segment is not the only industry to feel the impact of a recession, rather that segment is likely to sustain better revenue and profit than the market at large. This can create opportunities for partnerships with others, and these partnerships can then expand to increase revenue during and after the downturn.

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.

  • First, operations support for flexible mass-market services is critical. Network and service management and customer care are major cost centers, and it is very easy to create agile strategies that support your brand, extend your partnerships, and cost more in support than they can earn in revenue. Agility in fielding new services is more often limited by the operator's ability to deploy and sustain the service than by the technologies used in building the service. Cost control in this area can also free financial resources to support capital programs.

  • Second, services should be built using software rather than hardware. A "feature platform" that is software-programmable is inherently agile because the software cost is a small part of the total cost. Service-layer technology hosted on servers and/or service delivery platforms (SDPs) are likely to produce greater results per dollar spent than any other service strategy.

  • Third, managed services, hosted services, SaaS and cloud computing are likely to be more successful in a downturn because they allow buyers to trade a high capital investment for a low recurring cost.. This is particularly true when credit is either tight or expensive. Enterprises are also more interested in "tactical" services sold for a short interval of time than in long-term expansions to their connection bandwidth. By managing your customers' risk, you can reduce your own.

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.

This was first published in October 2008

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