Threats and Opportunities for the Telecoms Industry

The telecommunications industry must plan its strategic responses to multiple economic scenarios. Without adequate forethought on the spiraling ramifications of economic downturns and diligence in detecting which scenario is upon them, telecom management teams will find their options for effective course correction greatly constrained. Worse, some firms may fail or be forced into being acquired at distressed prices.

Senior Research Analyst Pete Dailey of Stratecast (a Division of Frost & Sullivan) identifies and analyzes three different recession scenarios and relevant strategies in a recently released report.

"Ask two economists what the economy will do in the near future, and you will get three opinions -- or more," says Dailey.

As the future economic reality unfolds, companies may face one of three scenarios: a deep, long-lasting recession; a deep, short-lived recession; or a shallow, short-lived recession.

"The characteristics of the deep, long-lasting recession scenario are elevated unemployment and massive contraction in consumer spending," says Dailey. "This results in reduced enterprise spending, a broad-based contraction of gross domestic product (GDP), and may be accompanied by inflation."

Additionally, a deep, long-lasting recession would almost certainly entail a protracted erosion of real estate values, continued weakening of the dollar and sustained increases in oil prices. In this scenario, telecommunications services, as well as consumer electronics, enterprise information technology, the media and entertainment sectors, would all see a decline.

The research from Stratecast not only characterizes the deep, long-lasting recession scenario, and appropriate strategies to deal with that scenario, but similarly assesses the deep, short-lived recession scenario, and the shallow, short-lived recession scenario.

Any of these recession scenarios will impact the performance of players in the telecommunications industry. A deep, long-lasting recession would almost certainly result in a degree of industry consolidation, with the most vulnerable firms collapsing, and still others acquired at fire-sale prices.

"Stratecast recommends that all clients, service providers and vendors alike devote increased resources to monitoring and analyzing the economy," says Dailey. "Utilize a scenario-based strategy development process that formulates and models actions in response to various hypothetical situations."

For instance, firms may consider overseas expansion as one way to turn the decline of the dollar into an opportunity. Changing fiscal controls, by accelerating asset turnover, restructuring liabilities into longer-term instruments and converting assets to currency-adjusted securities, is also a method that will insulate against the deleterious effects of recession.

Likewise, firms should focus resources on relatively well-performing sectors of the economy, like the agricultural, hospitality, and oil and gas sectors. Stratecast offers critical insight into pricing strategy tailored to meet varying objectives.

Stratecast contends that trends such as wireless replacement of wireline services, migration to voice over internet protocols, the shift to digital media delivery and increased Internet video consumption are likely to be amplified by economic pressures.

"Every economic scenario involves threats as well as opportunities," notes Dailey. "Some industry participants will stick their heads in the sand and pretend that the economy will be static and possibly miss opportunities. A proper scenario-based strategy process involves constant calibration."

Posted to the site on 31st March 2008