Confronting the Crisis: Its Impact on the ICT Industry draws on analysis from leading industry experts and international institutions. As the established order is overturned, it says, convergence in the ICT industry will accelerate, with the emergence of new players with new business models. Firms’ ability to weather the economic storm will depend on their ability to invest for the future and explore new opportunities to benefit from the eventual upturn. For an industry founded on innovation, the current turmoil will create openings for nascent ICT companies.
Confronting the Crisis finds that although credit is now less abundant and more expensive, with financing costs for operators on average 3 − 4 per cent higher year-on-year, savvy operators can take advantage of the economic turmoil to reposition their services for the upturn. Funding is still available for players with sound business models, established demand and early projected cash flows. Alternative sources of financing are now needed, with a growing role for government financing and economic stimulus packages.
“Despite difficult times, there are reasons to be optimistic,” said ITU Secretary-General Hamadoun Tour, speaking in Barcelona. “Having contributed consistently as a high-growth sector in its own right, ICTs can now power economic recovery across all sectors. Along with stimulus packages put together by governments, the ICT industry must continue to invest in infrastructure and the roll out of cost-effective services, such as next-generation networks.” Dr Tour added that innovation is the key to recovery.
Many analysts contributing to Confronting the Crisis underlined the need for ICT as vital services and suggested that fixed-mobile substitution and consumers’ decision to switch to mobile telephony may gain momentum in developed markets during a prolonged recession. The report also notes that long project lead times for the satellite industry mean that it has been less affected in the short term, with strong recent growth in demand from developing countries.
The financial difficulties facing the private sector could add to pressure for government intervention in the financing of national backbone infrastructure. Governments are already stepping in to diminish the impact on the transition to next-generation networks (NGN), which can carry voice, data and media services simultaneously. Several administrations have announced commitments to invest in their national backbone infrastructure, while others, such as the European Union, have included the roll-out of broadband networks in their economic stimulus packages. Although the financial crisis may delay investment in NGN, it has also led to a widespread reaffirmation of the importance of building advanced telecommunication infrastructure as part of an economic stimulus package.
The Confronting the Crisis report finds that although by early 2009 some operators had cut capital expenditure (CAPEX) by 10−15 per cent, many telecommunication companies acknowledge that investment is vital to maintain quality of services. Growth rates in capital expenditure by regional mobile phone operators may slow down, but CAPEX is unlikely to decline on a global basis. Operators are instead focusing on adopting a more rigorous approach to control costs and increase operational efficiency.
Equipment vendors may be first in the firing line of cuts in investment, but soaring growth in mobile telephony in developing countries has not yet been affected by the crisis. Large emerging markets, including Brazil, India and Nigeria, registered record subscriber additions in September and October 2008. Mobile operators are generally better placed to weather the downturn than fixed operators, as CAPEX accounts for a smaller proportion of their cost base and the incremental cost of upgrades to their networks is low.