The major business headlines over the last few weeks are claiming that we are now climbing out of the recession and growth was seen in Q3. If we keep this in mind when looking at the most recent Telecommunications business news, we see a discrepancy.
As we all know business in the Telecommunications sector started off shaky in 2009 but recent headlines have shown that the economic slowdown has hit the Telecom Vendors hard in the recent 3-6 months. Some of the headlines have read:
The Forecasts of these as well as other Vendors in tis space don’t look very appetizing either leading this author to believe in a protracted battle for stability. This is especially odd since these companies went through the Tech Bubble from 2000-2002 and have learned their lessons about reckless business models, careless financing and technology overvaluation.
If we take a close look at the entire Telecommunications Vendor space as well as the purchasing pattern employed by most Service Providers in 2009 we see three glaring reasons for this:
First – Carriers have pushed back on strategic core spending for the year of 2009. Most strategic purchases in a Service Providers network cover portions of the network that are upgraded or replaced in long intervals such as 5-7 years. in 2009 Carriers are running their core transport and IP networks hotter and trying to squeeze as much value out of the 2008 strategic purchases as possible.
Second – Enterprise and Consumer broadband demand is as high as ever. The Carriers have to respond by adding new ports at the access portion of the network. Since there is so much competition for a smaller pie the Carriers are getting amazing deals on a per-port price.
Third – The Chinese Vendors are taking advantage of the situation and attacking the Global Telecomms market aggressively. The Carriers’ insatiable demand for cheap access ports is being partially filled by Chinese Vendors who are undercutting their European based peers by wide margins. Furthermore since cash is hard to come by, the Chinese firms are offering Financing to capture that strategic spend that has eluded the European based Vendors in 2009.
In 2010 the market should look better as Carriers cannot hold off infrastructure spending for too long but the European Vendors have some real challenges in restructuring their business to react to new realities on the ground.
