Weathering Economic Turbulence in the Telecom Sector

11/12/08

The economic storm will not spare telecommunications operators. Telecom companies, like those in every industry, are bracing for the likelihood of slower growth, especially if the global financial crisis causes a worldwide recession. But as essential service providers, telecommunications operators are likely to be shielded from the worst effects of the downturn. Some operators—those with the financial and market strength to invest while others are retrenching—may even be able to strengthen their positions during this turbulent period.

Booz & Company sees four areas where the financial crisis will have the most significant impact on the telecom business: M&A, operating costs and capital spending, core service revenue, and additional services for enterprises:

The credit crisis will slow M&A activity, but only in the near term. The current malaise in capital will not last forever, and when it ends, operators with strong balance sheets and cash positions may find themselves with some good opportunities.

Operators will accelerate their attempts to optimize costs and will reduce their capital spending. But rationality in making these decisions is key; the timing might be right to continue with long-term strategic investments.

Core communications-service revenue will prove resilient. This is especially true in mature economies and for geographically diversified players that have a presence in developing markets where the crisis has not been as severe as it has been elsewhere.

Enterprise customers’ desire to find cheaper ways of doing business may lead them to make greater use of certain telecom services—for example, services that support videoconferencing and telecommuting for businesses that wish to cut back on travel.

Download “Weathering Economic Turbulence: A Telecom Perspective.”

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