It does not come as a real surprise that the deal aimed at merging AT&T's and Deutsche Telekom's US wireless operations got nowhere. We were expecting as much back in autumn. In our view, there are no winners as a result of this dropped deal, not even the US consumer. The US consumer can look forward to poorer network infrastructure and a weakened T-Mobile as the low-end market provider. Hence, the Federal Communications Commission and Justice Department attained somewhat of a Pyrrhic victory.

Whilst the collapsed deal is a major irritant for AT&T, it is a disaster for Deutsche Telekom, as it leaves T-Mobile US in a very difficult position. With about 10% of the US wireless subscribers, T-Mobile US remains subscale. Its image is increasingly trending toward cheap rather than good value, given its patchy network coverage, especially in rural areas.

The reluctance by Deutsche Telekom to prepare for a "no-deal scenario" leaves T-Mobile without a clear strategy. This lack of direction is very risky and only pushes T-Mobile further down a slippery slope toward increasing churn and revenue and margin challenges. Deutsche Telekom needs to communicate its plans for 4G roll-out, spectrum purchases, partnerships for network sharing, and device portfolio. Above all, Deutsche Telekom needs to decide soon whether to pursue an IPO, a sale to another operator or a financial investor, or target a merger with the likes of Dish, Leap, Clearwire, Sprint, or even LightSquared. Ultimately, we expect Deutsche Telekom to opt for a merger scenario.

Nokia Seimens Networks’ top management has finally pulled the emergency brakes, after months of unsuccessful attempts to find a buyer. Going forward, NSN will focus on mobile network infrastructure and the services market. All other areas are non-core and subject to disposal. We estimate that about two-thirds of NSN’s current portfolio will remain in this new focus area. NSN will retain an attractive product and services portfolio and innovative solutions, as for instance its Liquid Net offering. However, some elements, like convergence offerings, will be difficult to pursue credibly in the future.

In our view, the new focus NSN is taking is right:

• NSN is focusing on growth segments of the infrastructure market. NSN aims to provide the most efficient mobile networks (including network outsourcing and sharing) to extract maximum value for telcos’ operations by developing intelligent network solutions and boost customer experience management.
• NSN will generate large savings from operating expenses and production overheads. NSN targets savings of €1 billion annually by the end of 2013. NSN tries to achieve this goal be focusing on organizational streamlining, real estate, information technology, product and service procurement costs, G&A, and supplier consolidation. Despite good revenue growth in recent quarters, NSN’s revenues per employee remain well below that of Ericsson’s in 2010 and even lags Huawei’s. NSN’s plans to reduce its global workforce by 17,000, or 23%, will go some way to address this imbalance.

It’s easy to bash incumbent telcos, to count them as being among the losers in the digital revolution. Cloud services players are taking business from telcos in the storage and server capacity space. Over-the-top providers are free-riding on the telco infrastructure. Software firms are eating into the communication business. Regulators are pressing for further price reductions. And to top this scenario, telcos are continuing to undercut each other in price wars.

During a round of executive discussions with Forrester, Orange Business Services (OBS) has shown that against these odds, it keeps a pretty even keel regarding the most hyped topics in ICT, most notably cloud and mobility. OBS is selective in its cloud offerings, focusing on UCaaS and IaaS. UCaaS is a natural extension of its communication business and thus falls into OBS’ home turf. All telcos should see communication services from the cloud as a natural extension of what they have always done.

OBS’ drive into IaaS, meanwhile, looks like a less convincing pitch. Its IaaS offering essentially comprises a virtual data centre offering with virtual firewalls and load balancing. The question is: How OBS can compete against the dominant cloud players in the storage and server space? In the short term, such an approach is conceivable. However, OBS will need to provide a much broader range of virtual infrastructure choices to avoid slipping into a low-margin market segment.

As a former investment analyst, I remember the feeling when stock market screens turn deep red. Such days turn one’s stomach upside down on a dealing floor. But even from the outside, such days are unnerving. The big question in the telecoms markets making the rounds at present is how the current market turmoil will affect the telcos. The 2008 financial crisis might provide some clues to what we could expect in 2011 and 2012, albeit in a less-pronounced fashion:

• Consumer spending on communications will remain pretty stable. During the last financial crisis, spending on communications remained largely untouched by the consumer. We do expect a slight migration towards flat rates for customers with the desire for greater cost certainties and towards prepaid by customers with the desire to lower their communication expenditure. One obvious danger in times of turmoil are price wars between service providers. They can offer only short-term growth relief, but at a high cost. Resulting poor margins will be felt for a long time.
• Businesses will put nonessential IT projects on hold or water them down. We have not yet seen evidence that COOs and IT departments have tapped the brakes on their tech buying, but they certainly have become more cautious. If the economies of the US or Europe go into recession — a possibility, but not our baseline forecast — that will hit IT budgets, as happened in 2008 and 2009. I am hearing from telecoms providers that their enterprise sales pipelines are already under pressure as customers slow their IT investments and look for ways to reduce their telecom services spending. Projects that support end-users with their sales efforts, e.g., sales force automation projects, are likely to be less affected than others.