Filtering coverage of just about everything through the prism of the dire financial situation is getting a bit old, but it is a necessary exercise.
The evolution of telecommunications and IT depends mightily, of course, on how much money the various folks in the food chain have at their disposal, both in total and compared to each other. Thus, a great change in consumer behavior -- the engine that drives the network upgrade train -- will have follow-on effects: If a telephone or cable company loses too many subscribers (or doesn't add new ones fast enough), it will be less likely to expand or upgrade and, thus, less attractive to business customers.
That cause and effect should be kept in mind when reading this BusinessWeek report on a study by GfK Roper Consulting. The study says that 40 percent of respondents feel that life will be fine without cable or satellite television due to the ability to get programming over the Internet. The commentary says bad economic times tend to hurt services that are seen as extras but buttress those that are essential. In this case, that would be good news for smartphones. Earlier this month, I spoke with Steve Rago, principal analyst for Broadband and IPTV for iSuppli. He surmised that even people who are unemployed will be reluctant to cut their broadband, since it is an essential part of the job search. It also is key to other finance-related activities that are likely to be top of mind now, such as refinancing a mortgage. While the GfK study doesn't offer good news for cable operators, it certainly validates their decision to diversify from video into VoIP and broadband data.
There is a lot of conflicting commentary on how the economy is affecting the cellular sector. In-Stat says the overall network transition from 2G and 2.5G to 3G and 4G is going to continue despite the tough times we now are experiencing. The firm says 3G and 4G will represent 30 percent of the market in five years. At the end of last year, 3G held 11 percent of the market. The piece doesn't estimate the minute 4G penetration at that time. A quote from analyst Daryl Schoolar in the press release suggested that WiMax is hanging in, though there is some slowing of deployments due to the economy.
It's easy to make a blanket assessment that the economy will be bad for telecommunications providers. It's another to delve deeply into the subject and assess what actually is happening. This is precisely what Fitch Ratings does in this report, posted at iStockAnalyst. The analysis is that times will be tough for cable operators, telcos and even wireless companies. The real bad news is that the report is a bit older-it was posted last December -- and conditions have deteriorated since then. The report looks at economic pressure, competitive pressure and regulatory pressure. The bottom line is that conditions will negatively affect the credit profiles of cable and telcos this year. The pain will not be shared equally, however, across the entire landscape or within each industry segment.
The cable guys can at least be glad of one thing: They aren't the satellite folks. Dish Network reports losing 102,000 subscribers during the last quarter of 2008 despite some decent financial results. The company warns that things will get worse due to the cancellation of its reseller contract with AT&T and what are by now familiar economic and competitive woes. Satellite providers perhaps are in the worst shape of the bunch, since they generally lack an effective broadband offering.
There is a lot of confusion in the marketplace. Though the general feeling is that cell phones in general and the smartphone subcategory in particular are less vulnerable than wired telcos and cable operators, those sectors are feeling the pinch as well. This week, Nokia reported that it will cut 1,700 jobs due to falling demand. The goal is to cut about $909 million in costs annually, according to Reuters. The story says the cell phone market is expected to contract by about 10 percent this year, though things will improve after the first quarter.
Every sector is struggling, of course, but things seem a bit worse for the cable industry's video arms and the telephone company's legacy wireline businesses. These preexisting trends clearly are being exacerbated by economic conditions. Broadband is unlikely to suffer more than other areas due to its arrival as a key element of the way people live, including their ability to search for jobs and otherwise deal with financial challenges. Finally, which continue to sell.