The telecoms industry may have shown resilience during the recession but the focus on driving efficiencies and reducing costs looks set to continue, according to Ovum.
A new report, entitled Telco Strategies for Recession and Recovery (March 2010), examines how the economic downturn has impacted service providers and how they are shaping up for recovery. Ovum warns that although the economic downturn hasnâ€™t resulted in the downward pressure on telco top lines that many expected, revenue growth is in decline for many mature market operators, and slowing for those in emerging markets.
Financial metrics across incumbents in Asia-Pacific generally declined, although performance is still relatively stable as revenue sources shift from legacy services to mobile, broadband and other new services. Recession took hold later in this region, with many markets suffering in second-quarter 2009. China and India are expected to show the strongest return to growth, but overall telco margins will continue to decline.
â€œWhile the recession accelerated revenue decline, challenges such as market saturation, increased competition and regulatory intervention on roaming and termination rates wonâ€™t disappear just because the economy picks upâ€, said Ovumâ€™s principal analyst Clare McCarthy.
One question for telecoms operators as the downturn hit was how user spending would be affected. As the quarters went by it became apparent that user spending was fairly resilient to the economic downturn, reflecting the fact that for the majority of users, telecoms is no longer expendable.
What are consumers thinking?
The consumer group of Ovumâ€™s parent company, Datamonitor, recently undertook a global survey entitled Recovery from Recession Study, (June-December 2009), looking at the changes in consumer spending across all industry verticals â€“ including telecoms â€“ with a particular focus on the effects of the economic downturn. The survey of 39,000 people indicated that while there is some degree of resilience in consumer telecoms spend, (with only 7.6% of consumers indicating that they would definitely cut back on spending), over a quarter of consumers surveyed indicated that they either would, or consider cutting back on their telecoms spending, with a further 24% undecided. When asked which services they would look to cut back on, over 30% indicated that they would consider downsizing their mobile phone tariff, while 24% saw fixed voice as an area where they could make cuts. See attachment for details.
Telcos are responding with cost-saving measures. In addition to cutting opex, telcos have also sought to reduce their capex, either through postponing or cancelling investment projects, or simply through utilising higher hurdles for return on investment in their decision-making processes. They are also accelerating employee release programs and stockpiling cash. Many telcos are emerging from the downturn with healthier balance sheets than when they entered, as well as significant cash balances.
Ovum believes those that prudently managed their finances during the downturn will grow, but should be wary of initiating M&A programs designed solely to grow top-line revenues. Targeted mergers, acquisitions and partnerships that fill key skill-set gaps will be the flavour of telecoms going forward.
Ovum analyst Mark Giles said: â€œWe expect activity, partnerships and possible acquisitions to occur, with telcos looking at over-the-top (OTT) services for consumers, as well as developing vertical expertise in ICT provision for enterprises.â€