Telecom gear market faces crash landing in 2009
HELSINKI (Reuters) - The struggling wireless telecom gear market is facing a crash landing next year as operators cut spending in the midst of recession.
The telecom equipment market, worth $49 billion in 2007, has been struggling for years, roiled as low-price Chinese vendors Huawei and ZTE aggressively entered the market.
But worse is to come.
No. 2 vendor Nokia Siemens has forecast a market fall next year, with analysts saying it could be sharp as new investments are likely to be cut first when operators around the world tighten their belts.
The companies have started to cut costs -- earlier this month Canada's Nortel said it would axe 1,300 jobs, and Nokia Siemens Networks is cutting another 1,820 jobs as the last part of its major cost-cutting program.
Vendors will also be scrutinizing their costs this year and next, trying to focus on the most promising technologies.
The largest vendor Ericsson has said its 2009 planning is based on expectations of a flat market, but stresses this is not the company's official forecast.
Analysts say the reality will be much grimmer.
"Wireless infrastructure investments could decline by 12 percent in 2009, due to a combination of emerging market slowdown and financing risks at carriers accounting for 25 percent of global wireless spending," Credit Suisse analyst Kulbinder Garcha said in a research note dated Nov 24.
Scott Siegler, analyst with U.S. research firm dell'Oro, said the economic situation was especially likely to hurt investments in 3G networks, which offer faster data speeds, with the total market falling "in the single digits" from 2008.
"We believe wireless has become a 'necessity' today, but add-on services like data packages are not," he said.
OPERATORS CALL
When consumer spending slows telecoms carriers focus more on cash generation -- one of the key attractions for investors as it underpins dividend payouts and share buybacks.
Many operators around the world, including Vodafone, the world's largest mobile group by sales, have said they plan to scrutinize costs and many say they will cut investments.
"For operators it's the easiest option to delay investments. They will wait -- postpone investments and make only the ones they have to do," said Hannu Rauhala, analyst with Pohjola Bank in Helsinki.
"I don't expect to see any major investments in Europe in early 2009," Rauhala said.
The only large investments are likely to come from emerging markets, but the already fierce competition for those -- usually low-margin deals -- is set increase further.
And with many emerging market currencies losing value against the U.S. dollar and the euro, the cost of imported goods to these markets is set to increase.
Last week, Brazilian mobile phone companies went as far as asking the government to postpone payment on taxes and recently acquired operating licenses in order to meet investment plans in the face of tighter credit conditions.
An industry source said most networks in Brazil are at straining with a lack of capacity and operators are requesting faster rollouts from gear makers.
OPPORTUNITY KNOCKS?
After operators have recovered from the crisis -- whether in 2009, 2010 or 2011 -- rising data traffic is the key opportunity for the industry to return to growth.
The increasing use of services such as television over the Internet is expected to increase data traffic 100-fold in the next 5-10 years, Nokia Siemens has forecast.
A shortage of capacity is also set to hurt operators in developed markets who have sold packages enabling mobile log-on to the internet from laptops, generating massive traffic especially from those on monthly payment plans.
"We are seeing a real explosion in data traffic in many mature markets and that, coupled with voice traffic growth in emerging markets, means that network spend cannot be deferred too much," said analyst Phil Kendall from Strategy Analytics.
(Editing by Chris Wickham)
