Earnings Learnings: What telcos can learn from rivals' ups and downs

More than ever, telecom service providers are competing against a broad array of technology companies, not just other network owners. There’s a lot to learn, of course, from what AT&T and Verizon will have to say this week (for a preview: AT&T and Verizon facing 2009 slowdown), not to mention recent comments on the economy from Nokia Siemens Networks and Ericsson, among others.

But it may be just as interesting to see how close rivals – like IBM in the global services business or Google in the network transaction (i.e., advertising) industry – are faring and what can be learned from them.

Google

Google saw a huge slide in its earnings last week, but revenue grew above expectations and overall search volume was strong. Google’s telecom play is clearly in mobile: Chief Executive Officer Eric Schmidt specifically pointed to mobile advertising as an important growth area – claiming that the T-Mobile G1 phone is already driving billions of page views.

Lesson: The law of big numbers make transaction-oriented companies like Google (and yes, potentially large telecom service providers) more recession-proof than most companies. The next battlefield and opportunity for growth is clearly mobile. In a down market, wireless operators are more likely to cut favorable partnership deals with Google than get strong-armed.

Apple/Microsoft

Apple hit $10 billion in quarterly revenues for the first time, demonstrating that its boutique tech strategy still has legs. Surprisingly, the iPod grew strongly while sales of the iPhone plummeted by 40% versus the previous quarter (obviously worth watching if this trend continues). Microsoft, by comparison, had it quite a bit rougher: They missed earnings and saw revenues grow just 2% and also announced their first layoffs. Deep in their report: revenue for their Zune device fell by 54%.

Lesson: Both companies will have a hard time keeping the growth coming in a down economy. For service providers hoping to get in on the music business (or other content businesses), beware: Market leader Apple looks to be poised for tougher times in that space, while Microsoft seems to be falling precipitously.

IBM/BT

Large service providers like AT&T, Verizon and BT see IBM as a model for – and competitor to – their growing global services businesses. So it was undoubtedly good news that IBM beat earnings estimates last week – and even issued a positive forecast for 2009. News at BT wasn’t nearly as good: BT said Friday its global services arm saw a 92% decline in profit in the closing months of 2008 due to cost problems on several key projects.

Lesson: There’s money to be made doing services deals with large global enterprises, but the combination of network services, IT products and consulting services can be a challenging mix to manage. Do it right (IBM) and you can do well, even in bad times; do it poorly, and things can get ugly quickly (BT).