Telecoms, the recovery, and 2010 - think Volkswagen

Mike_Cansfield

The big story in 2008 was the near melt-down of the Financial sector, and the wider economic recession that followed has been the tale of 2009. As a company we have been tracking the impact of the recession on the ICT sector (Information and Communications Technology) through a series of articles over the past 15 months, but what about the recovery. Will the recovery be the story of 2010?

Before we can consider this question, it is important ensure there is no misunderstanding on the recession. The communications sector has undoubtedly been hit by the economic downturn, but this cannot be compared to the crash experienced by the auto manufacturing, airline, construction, and retailing sectors to name a few. For communications the recession has been relatively mild, as the figures posted by major telcos have showed.For example, in Q3 2009 (July to Sept) Telefonica posted revenues down 5.7% yoy (year on year), and AT&T income was down 1.6% yoy. So the bounce back for the sector is, relative to others, quite small.

Communications and the health of the economy are inextricably linked, so a recovery in the latter is a pointer to a pick-up in the former although there is a time lag effect also in play. According to the OECD (Organization for Economic Co-operation and Development) emerging market economies (Russia, China etc) have recovered more quickly and look set for both stronger and more rapid growth than mature economies (US, UK etc). So geographically the recovery is patchy. The same is true for telecoms. The strongest growth will be found in emerging markets (so this is good for Telenor, Bharti, Zain, Orascom etc) but less so for those dependent upon mature markets (such as BT, Verizon, and NTT). So the recovery in 2010 will not be uniform across all countries.

There are voices that suggest the recovery itself will not be v-shaped (a straight bounce back with a return to what was before) but more w-shaped (a bounce followed by a series of short reverses and recoveries). Personally I do not think it is a choice between one or the other as  think we will get both - a v-shaped recovery in the short term followed by a period of uncertainty (w-shaped). I refer to this as the Volkswagen recovery (vw - get it!). In telecoms there are a number of uncertainties that hang over the sector - technology, regulation, operations amongst others) that need to be worked through before we can say we are out of the woods. This uncertainty further points to a vw recovery in 2010.

This is my take, but what do you think?