Home / Recession dents telco growth

Recession dents telco growth

Further cost reduction likely in global telco sector, according to Ovum.

The global economic downturn continues to weigh on telecom growth, according to Ovum.
The global economic downturn continues to weigh on telecom growth, according to Ovum.

The global telecom sector will continue to suffer from declining revenue growth in mature markets, while growth rates in emerging markets also looks set slow in 2010, according to analysts at Ovum.

The research organisation said that while the telecom sector may have shown resilience during the recession compared with many other industries, operators were likely to continue to focus on driving efficiencies and reducing costs.

Telcos have attempted to reduce costs by postponing or cancelling investment projects and by setting higher targets for return on investment. They have also shed staff and stockpiled cash, according to Ovum.

But Ovum’s findings were not entirely negative, with many telcos apparently emerging from the downturn with healthier balance sheets than when they entered, as well as significant cash balances. 

Furthermore, telcos that “prudently managed their finances” during the downturn should grow, but should also be wary of initiating M&A programs designed solely to grow top-line revenues, according to Ovum. Targeted M&A and partnerships that fill key skill-set gaps “will be the flavour of telecoms going forward”, the organisation said.

 “We expect activity, partnerships and possible acquisitions to occur, with telcos looking at over-the-top (OTT) services for consumers, as well as developing vertical expertise in ICT provision for enterprises,” said Mark Giles said, an analyst at Ovum.

Performance of telcos also varied significantly in different regions. Ovum reported that the “financial metrics” of incumbents in Asia-Pacific generally declined, although performance was still relatively stable as revenue sources shifted from legacy services to mobile, broadband and other new services. China and India were expected to show the strongest return to growth, but overall telco margins will continue to decline.

The report also note that the telecoms sector in the Middle East had remained largely unaffected by the recession, although  several operators in the region had cut costs and staff to maintain margins as prices decline due to greater competition

“While the recession accelerated revenue decline, challenges such as market saturation, increased competition and regulatory intervention on roaming and termination rates won’t disappear just because the economy picks up”, said Clare McCarthy, principal analyst, Ovum.