Credit crunch should worry telecoms bosses

24 Sep 2007

The possibility of a US recession and fears of a global credit crunch in the wake of the Northern Rock bank controversy all point in the direction of a potential global economic slowdown. This is something telecoms bosses should be concerned about, according to analyst Ovum.

“With telecoms as a key enabler of the global economy, slowdown in the latter is therefore sure to impact the former. This would seem to indicate that we should be worried,” Ovum principal analyst Mike Cansfield said.

Cansfield said the prognosis for the economy worldwide is troubled: problems with sub-prime lending in the US, private equity firms are struggling to raise funds, oil prices are at record levels and stock markets are volatile.

“The telecoms industry is going through a period of profound change,” explained Cansfield.

“Within the sector, the three big issues are convergence (of services, networks, systems and sectors), transformation (of the telco from a stove-pipe calls-and-lines business into an integrated IT business), and changing business models (from technology to services; products to value-add solutions; and engineering to market-led approaches).

“Addressing all three requires investment, so problems in the banking sector should worry telcos. But with their healthy cash flows they are unlikely to find it hard to raise money.”

Cansfield said that money alone is not the issue, but the problem is whether telcos can pull off this three-card trick at the same time.

“Some will, but many won’t. The key will be how well telcos invest and implement — this is what (should) keep a telco CEO awake at night.”

By John Kennedy