Telecoms Feeling the Credit Heat?

October 31, 2008

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The telecommunications industry has long been considered recession proof. After all, everyone needs to communicate, right? But lately many companies have become debt heavy due to extensive network build outs for enormously burgeoning bandwidth demands, hardware and technology costs involved in transitioning service to VoIP and lost revenue due to a volatile consumer market attracted to mobile, unified all-in voice/data solutions from smaller vendors. The costs range into the billions.

Rising need for capital expenditures is being met with rising costs of capital and a consequent decrease in profits. As operating capital declines, cost cut-backs will be the order of the day. AT&T, Verizon Communications, Sprint Nextel and others have all had their 2009 earnings estimates lowered by analysts. The bottom line is that everyone is going to pay more for credit.

If an economic slowdown reaches into the telecom market, it will be the technology sector that will feel it first. Reductions in spending plans would directly impact primary equipment makers and that supply line to the industry. This would then affect build out futures of wireless and land networks. iSuppli analyst Steve Rago expects second half capital expenditures on worldwide wire line networks to decline 20% from expectations made earlier this year. Standard & Poor analyst, Ari Bensinger anticipates significant sales weakness over the next couple of quarters. But who can say when the credit markets will settle down, or even if they will snap back to normal?

Verizon executives say they have not seen signs of a slowdown. In fact, they believe a widespread recession could create a heavier reliance on voice, data and video as consumers spend more time at home, both relaxing and working. However they spin it, the industry is facing huge change and a chaotic economy simultaneously.

The question of survival for the most highly leveraged companies may very well rest in their ability to cover their credit needs more than in their ability to roll out new services and grow their customer bases.

Written by peter · Filed Under Business, Internet, Mobile, Monthly Newsletter, Others, Telecom, VoIP/SIP, WiFi