Tough time ahead for Asian telecom firms

MELBOURNE: In the wake of the global financial market turbulence, 2009 would be a challenging year for the Asian telecommunications industry, says Ovum, the market analysis, advisory services and consulting firm.

“Telecom firms in the Asian region were already facing many challenges,” said David Kennedy, research director (Asia-Pacific) at Ovum. “But the financial crisis will add a new element of uncertainty.”

However, the crisis is not likely to hit Asia as hard as the US, he opined, though the declining US domestic demand will certainly affect Asian exporters and hence the rest of the economy. That includes telecom firms also, he said.

According to the analysis of Ovum, the impact on the telecom sector will be mixed. Slowing economies will hit revenue growth, increasing short-term pressure to cut costs.

“We expect many planned infrastructure projects to be delayed or cancelled in 2009,” observed Kennedy.

However, he added that it is also time for telecom companies without a clear transformation program to start planning their pathway to a permanently lower cost base.

“This will require more spending on IT systems and new network technologies in the medium term. This will require telecom firms to generate clear business cases for investment and develop strong execution skills.”

In his opinion transport budgets are likely to be an early target for cost cutting across the economy and that could mean growing demand for national and international telecommunications services, especially in the enterprise sector.

“And advanced telecommunications services like mobile and broadband, once regarded as discretionary by consumers, are increasingly regarded as essential,” the Ovum analyst pointed out.

The pressure in the market will force telecom companies in Asia to target their product development and pricing strategies more carefully to address different customer segment.

It also said mobile phone handset replacement cycles will lengthen and higher-end models will potentially be passed over for cheaper alternatives. This will have the effect of slowing the growth of mobile data traffic.