Is the recession really over for telcos?

For the telecommunications industry, hard times are nearly over – or here to stay, depending on whom you ask.

With four-quarters wrapped up for the wireline and wireless operators, handset makers and equipment vendors, analyst firms are cranking out their 2010 projections. For the telecom industry as a whole, 2010 will be punctuated with continued cost cutting, but the prepaid and smartphone sectors should be best positioned to draw a sigh of relief.

The telecom industry in general has shown resilience to the recession, but they have been focused on driving efficiencies and reducing costs – and they won’t change course in 2010, according to Ovum. In a report released today, the UK-based research firm said that revenue growth is in decline for many mature market operators, even though the economic downturn hasn’t resulted in as much downward pressure on their top lines as many expected. Ovum is warning operators that the tough times aren’t over yet.

That being said, North America is strengthening, Ovum added, based on the surge in mobile data and a new focus on prepaid. Cable operators in particular are seeing revenue growth and improving margins, while telcos are struggling to grow revenues as their margins are squeezed, report author and principal analyst Clare McCarthy wrote.

“The biggest downward pressure on telcos comes from declining fixed access lines, driven by substitution from mobile and VoIP,” McCarthy wrote in the report. “While the recession accelerated revenue decline, challenges such as market saturation, increased competition and regulatory intervention on roaming and termination rates won’t disappear just because the economy picks up.”

User spending was largely unaffected in Q4, but that too could change. Ovum parent company Datamonitor’s survey of 39,000 consumers indicated that more than a quarter of consumers said they either would consider cutting back on their telecoms spending – with 30% planning mobile-phone cutbacks and 24% making cutbacks on the landline. Ovum concluded that it expects 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 information and communication technologies for the enterprise segment.

As Ovum noted, however, prepaid is one market that has continued to be a bright spot for most wireless operators throughout the downturn. Another research firm, IDC, said on Friday that the top five US wireless carriers added just under 4.2 million retail net subscribers during Q4, of which 65% were prepaid users. More than 22 million gross retail subs were added during the quarter, bringing the total wireless subs in the US to nearly 285 million, IDC said. In total for Q4, data revenue accounted for $11.8 billion dollars and now represents 275 of service revenue. IDC expects both prepaid and data to be the biggest drivers of a wireless recovery in 2010 with data growing to $50 billion in revenues.

Smartphone shipments were another bright spot in Q4, a trend that should also continue. Smartphones outpaced the preceding nine months, according to an ABI Research report today. This is typically always the case for fourth quarters, but ABI called this past year’s Q4 “remarkable” with a 25% increase in smartphones shipped over the previous quarter. As a comparison, Q3 only grew 3.6% from Q2. Here, again, North America fared the best. Helped by operator subsidies, the smartphone market grew 30%.

“The United States is now the leading market for smartphone ‘mindshare’,” said analyst Michael Morgan in the report. “Vendors view success there as a springboard to success in the rest of the world.”