Recession Depression — How Bad Is It, Really?

Although you would have to be living in a hut on the frozen tundra not to have heard about the slowing economy and possible recession, analysts aren’t ready to throw in the towel on telecommunications. Some might speculate as to how an economic downturn might affect specific areas of the business, but it seems no one really is ready to talk about any widespread effects of what’s been called the worst economic crisis since the Great Depression.

That’s at odds with the 24/7 news cycle worrywarts who already are chatting on a daily basis about impending doom.

“I know the news talks about the slow economy, but I haven’t heard from anyone that it’s severe and that it will last a long time,” said Atlanta-based telecom industry analyst Jeff Kagan. “Based on that, I don’t see an impact in telecommunications right now. That could change if things get worse or last longer than we expect; but so far, so good.”

One analyst pointed out that despite the media frenzy telling people to think America is currently in a recession or will be in one soon, the country has not yet experienced the two consecutive quarters of declining GDP, which officially denotes an actual recession. But the hype alone seems to be provocative enough; and whether it ultimately provokes in a positive or a negative way, no one can deny the telecom landscape is changing, and that so far, those changes point to opportunity, even within a depressed economy.

“We are already seeing an impact in the industry in two ways,” explained David Lemelin, senior analyst with In-Stat. “The need to be leaner in a competitive environment is even more significant in this industry as the economy slows, but the type of work will also change. We saw Qwest [Communications International Inc.] announce job cuts focused on legacy wireline positions. At the same time, the industry will need to hire and train specialists to focus on next-generation networks where IP, unified communications and mobility converge,” he said.

Kagan agrees that priorities are evolving — in a good way. “The telecom industry has grown and changed quite a bit in the last decade,” he commented. “Ten years ago, there were separate sectors like local, long-distance, wireless, broadband and so on. Today, the lines separating those sectors have blurred. Companies are starting to compete in the entire industry, not just one sector,” he said.

Fixed-mobile convergence and subscriber hunger for mobility is one thing that will keep the industry afloat, Kagan added. “The wireless industry has matured quite a bit during the last 10 years,” he said. “Ten years ago, it would be much easier for customers to cut their cell phone expense totally. Today, I think the cell phone is so connected that many customers would rather cut their traditional phone before their cell phone. In addition, I think customers will keep the phone for calls and messaging, but cut out much of the extra mobile Web-based services that are not necessary.” However, that might change: As wireless usage and bandwidth increases, Kagan said customers soon might not want to cut any of those services, and he predicts wireless to continue to be a growing, powerful market.

Lemelin said VoIP migration also will be affected by economic concerns. Since initial VoIP adoption is driven by cost savings, companies that previously have been undecided about the migration might be persuaded by the economic state to pull the trigger. “Legacy wireline has been under pressure for years, but an economic downturn could potentially hasten the shift to IP, particularly among smaller businesses where large investment in integration is not required,” explained Lemelin.

Lemelin also said he thinks conferencing and collaboration will excel in a slowing economy, particularly in the area of video conferencing. “The technology has improved significantly in the past several years and bandwidth costs are less of a barrier,” he said. “Travel has lost much of its appeal, so companies are likely to dust off video conferencing equipment, as well as inexpensive desktop solutions.” In cases like these, a slowing economy will mean nothing but profit for these service providers and OEMs as businesses spend money on the front end in hopes of large savings and significant ROI in the long run.

Kagan said all the major telecom players will continue to grow, although the growth might be modest for a few quarters. As to what specific service areas will be affected, Kagan posited that it comes down to each individual customer’s situation. “So far, there is no impact in the telecom industry due to the economy,” he said. “If the time comes that there is impact, I think it will affect the services customers want, not the services they need. ... Voice and text messaging are in everybody’s blood; I think they will not be affected,” he continued. “Perhaps customers will send [fewer] messages to reduce costs, but they will not cut the service. Customers on the all-you-can-eat plans will see no changes.”

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