Communications and Technology Industry Research

How is the telecommunications sector likely to be hit by the current economic crisis? New research by Frost & Sullivan shows that two factors are going to prove decisive to this sector. Firstly, investments are likely to be reduced because of the difficulty in finding credit. Secondly, with consumers choosing to economize, the services used are also going to diminish.

Explaining that the telecommunications sector will be deeply affected by the recession, Saverio Romeo, Frost & Sullivan (News - Alert) industry analyst said, "First, due to the lack of credit in the global economy, investments will fall in the beginning of 2009. Particularly, investments related to incredibly costly projects such as acquisitions, will feel this drop intensely. Second, consumption will fall as people move away from wants and focus on their needs. This will reduce the uptake of innovative services."

Frost & Sullivan analysts pointed out that globally companies had already started feeling the pinch and were cutting back. For example, since November 2008, Vodafone (News - Alert) and Telecom Italia announced midterm cost reductions of 1billion pounds sterling and euro 2billion respectively. Also, BT and Virgin Media had decided on job cuts; the former relieving 10,000 employees, while the latter reduces its workforce by 2200.

National governments and super-national organizations recognize the significance of the telecommunications sector to the economy and are working to protect it. For example, the European Economic Recovery Plan stresses the importance of broadband infrastructure, ICT services and sustainable telecommunications.

Further, the European Union has committed to an immediate investment of euro 200bn to implement 'public-friendly' legislation. From 2009-2010, the EU plans to invest euro 1bn for the development of "high-speed Internet for all" with the aim of achieving 100% broadband coverage across the EU by the end of 2010.

But companies should look beyond only surviving the current crisis and see it an opportunity for innovation, analysts said.

While one trend is for companies to cut costs, reduce investments, monitor consumption through pricing and reign in cash flows to survive the crisis in the short term, another more important trend is to look at disruptive business models as an effective way to attract consumers.

The term disruptive business model refers to those models that combine “existing technologies with new business models to create low cost products and services (i.e. the combination of mobile content with forms of marketing and advertising)," Romeo explained.

Mobile network management sharing is thus one example of optimizing resources. Through such collaborations with players of different expertise, companies can expect to reduce costs, advance the quality of service, and offer more attractive packages to the customer.

"We believe that innovation should remain at the core of economic and industrial policies. We also believe that the same networks that are spreading the crisis can also be the ones to promote innovation in a collaborative and open manner; stimulating economic growth," states Saverio Romeo.