16 Feb 2009

Will the global economy cloud the annual telecoms fest in Barcelona?

There’s no escaping talks about the global economic downturn. As the main news in the UK this morning was the loss of another 850 jobs after the closing of a Mini car factory near Oxford, the world of telecoms too continues worrying about the downturn.
The opening of annual telecoms gathering Mobile World Congress in Barcelona today gets a mention in Spanish daily El Pais, only to say that the event’s attendance is affected by companies reducing their spending: an estimated 5000 less visitors are expected and, according to the paper, they are “tightening their belts: less meals, less parties, and less days in the city”. This will certainly save many of the show’s visitors from reaching for coffee and aspirin after an evening of fiesta. It is also an indicator of the impact of the economy on the sector, and of its prominence in the talks to be had over the next 4 days.
Indeed, as 6 industry analysts are asked for their insights for the congress daily magazine, the economy features prominently in their choice of hot topics, albeit with varying degrees of pessimism. While Will Croft from Wireless Intelligence believes “we’ll still see the mobile sector outperform many others over the course of the year”, Dean Bubley from Disruptive Analysis is far more cautious: “there is far too much unwarranted optimism at the moment. The economy will affect consumers’ price consciousness (…), operators will look closely at suppliers’ financial situation and be wary of committing to start-ups with fragile funding”.
Looking at events in the past week, it’s no surprise that industry commentators are looking at the economic situation in the telecoms sector. A number of operators have announced a fall in revenues (Singapore’s Starhub, Elisa in Finland among others), while major names on the equipment side are still making news with job cuts and profit warnings, not to mention Nortel’s Chapter 11 move causing huge controversy with its supplier Alvarion over a considerable unpaid bill.
However, the picture isn’t all bleak. In emerging markets, some operators have announced new investments in their networks, going against the general cost-cutting mood. Tele2, the Swedish telco, announced last week it was to spend $131.8 million in 2009 for its service expansion plans in Russia. Indian-based Tata Communications announced $430 million in investments across Asia-Pacific, to build a new data centre in Singapore and complete the Intra Asia cable that runs from Japan to South East Asia. In Africa, submarine cable projects are still going strong, both in East Africa and to connect West Africa to Europe. In many of these markets, the main focus is to secure reliable international connectivity with sufficient capacity to deliver broadband access to end-users and profitable corporate consumers.
One of the first sessions in today’s debates in Barcelona was about access to broadband in emerging markets. The question of international connectivity was unfortunately not the main focus, but the mood was positive about the demand for broadband services in Africa, Asia and Latin America. The panel included speakers from India’ Idea Cellular, Malaysia’s Maxis, and Sri Lanka’s Dialog, all forecasting great opportunities for mobile broadband over 3G and HSPA.
So is it safe to say that emerging markets will be immune from the economic downturn thanks to this growing demand for broadband services? The jury’s out. While today's panellists seemed to think there will be strong enough market demand to support their revenues, their positive stance may have been influenced by the possible presence in the audience of members of the press and possibly their shareholders. On the other hand, I was recently reminded by an operator based in sub-Saharan Africa that in very low income markets, telecoms spending will be seen as even more of a luxury in times when households struggle to purchase even basics like food. Another factor affecting operators in this time of financial crisis is the growing difficulty in securing funding for operators’ expansion plans. The companies who recently announced their investment plans had probably planned them early enough to avoid the consequences of the banking crisis. Only last week,it was reported that Econet Wireless in Kenya had experienced great difficulty in confirming a loan that was necessary for the launch of its new network (branded Yu)
It will certainly be interesting to follow the evolution of operators’ strategies for emerging markets as the global economic situation becomes clearer as the year advances. I look forward to hearing discussions in future events such as East Africa Com and Eurasia Com in April, India & South Asia Com in May, or West & Central Africa Com in June.