The Beginning of the Pullback

Telecom had its own triple-play this week with announcements from Nokia, Telecom Italia and AT&T all painting a dire picture for the coming year. Nokia started the ball rolling last week with its announcement that it is reducing its handset forecast for the 4^th quarter for a second time within 30 days. In addition, Nokia stated that the slowdown is happening more rapidly than expected and that demand is expected to decline by at least 5 percent in 2009. This was followed by Telecom Italia’s announcement of addition personnel cuts, as well as an 11 percent CAPEX reduction for 2009. Not to be outdone, AT&T announced 12,000 job cuts and said planned CAPEX spending for 2009 will be below 2008 levels, with guidance coming in January.

These announcements (with many more expected to follow) are in stark contrast to the viewpoints shared in earnings calls for 3Q08. In virtually every call I listened to, operators stated they were seeing no impact from the economy. My, how times change and change quickly.

Customers are looking for any way to save and conserve money. And although broadband and wireless are deemed as essential services these days, consumers are likely to downgrade their packages in order to save some money.

For the last few years, telcos dismissed the loss of landlines, by touting growth in broadband and wireless. However, as penetration of these services reach saturation levels, the loss of wireline has become more apparent.

In many respects, the telcos have no one to blame but themselves. They completely devalued their fixed line voice services rather than trying to keep them relevant through capabilities such as unified communications or even VoIP. For many operators in other parts of the world, this has been the key to reducing line loss.

Unfortunately for North American telco operators, the loss of a voice line often leads to the loss of a broadband customer - the quintessential one-two punch which usually results in a knockout. In addition, the selective deployment of their advanced services (e.g. FiOS and U-verse) makes it all too easy for “non-valued” consumers to switch to cable operators, whose services are fairly ubiquitous across their entire footprint.

As such, I’ll leave you with this quote from John F. Kennedy: “When written in Chinese, the word "crisis" is composed of two characters. One represents danger, and the other represents opportunity.” Right now, telecom is heading towards the danger category. Those that survive through 2009, will be the ones that found the opportunity.

Happy Holidays!

Teresa Mastrangelo
Principal Analyst, broadbandtrends