Surviving the Recession: Tough choices in R&D

If the economic recession worsens or lingers for any extended length of time, that equation could change, forcing carriers to re-evaluate their spending. But he pointed out that two key drivers in telecom, broadband and wireless voice service, are now considered necessities rather than luxuries for most consumers and businesses, meaning telecom may be more insulated from a long-term economic downturn. Furthermore, carriers may be forced to spend even if their inclination is to save. Unlike the days of the telecom bubble, when carriers were investing in new technologies and networks willy-nilly, the 3G and fiber-to-the-x networks operators are building today are clearly the foundations of their future growth, Celentano said.

“Take Project LightSpeed and FiOS,” Celentano said. “AT&T and Verizon have no choice but to invest. If they don’t move ahead, they risk losing customers forever. The pressures to compete are much greater than they were five years ago.” That’s good news for the vendors, as revenues from today’s networks pay for the R&D of future networks.

But those future network deployments may be in jeopardy. One of the casualties of a deepening recession, said Bernstein Research analyst Craig Moffett, could be 4G networks, a technology wireless vendors have dumped loads of R&D resources into for the last year. Both Verizon and AT&T have committed to building long-term evolution (LTE) networks beginning in 2010, but if they’re facing financial pressures, they could easily postpone such deployments and pursue their data strategies solely with 3G. However, economic concerns won’t be the only factors the two carriers will weigh. Clearwire and Sprint just kicked off a nationwide deployment of WiMAX. It’s still an open question if their new network will directly compete with 3G, and if so, whether its reach will be large enough by 2010 to threaten AT&T and Verizon’s business. If the new Clearwire and other global WiMAX operators wind up competing in the home broadband and mobile modem space or fail to build a huge footprint, AT&T and Verizon and other worldwide mobile operators may choose to push off LTE for a year or two more, Moffett said.

“3G networks are in their infancy,” Moffett said. “There is a case to be made to try to make some money off of 3G before throwing it under the bus.” All of the major wireless vendors have poured money into LTE development as carriers have fast-tracked their 4G plans. If the operators postpone their LTE deployments, the vendors will see a huge source of expected revenue dry up, leading vendors to scale back their own LTE investments.

It’s those future networks that TIA is worried about the most. Up-and-down cycles of investment play havoc with the R&D budgets of its vendor membership and in turn jeopardize future technologies available to carriers and ultimately consumers and businesses, as companies make long-term sacrifices to meet the near-term demands of Wall Street. Seiffert, however, is hoping for help in smoothing out those cycles form an unlikely source: the government.

As Congress proposes new economic stimulus programs that invest in public infrastructure such as roads, Seiffert is asking that telecom infrastructure be tossed in the mix. In a letter to House and Senate majority and minority leaders, Seiffert argued that communications highways are just as important as physical highways to the country’s economic growth and prosperity and asked Congress to create broadband deployment incentives in any stimulus package passed.

“Broadband networks directly impact the productivity of our industries and our economy and pivotally affect public safety, education, health care, and countless other functions in Americans’ daily lives,” Seiffert wrote in the letter. “Like any other infrastructure project, the deployment and use of broadband will significantly increase and maintain job growth well beyond the initial investment in the infrastructure itself.”