Strategies for taming the downturn

Staff Writer
18 Dec 2008

Stock markets may be in the doldrums, handset sales forecasts are being cut, and operators and equipment suppliers shedding jobs by the thousand, but for some an economic downturn is not just a problem but an opportunity. It's a chance to expand market share and come out of the crisis in a stronger position.

While communications services are fairly recession proof, the handset replacement cycle will certainly be extended in most markets, leading to the first sales decline ever. But for the rest of telecoms, with a much longer capital planning cycle (typically about seven years), the outlook isn't as dire.

A joint Telecom Asia-Ovum online survey of Asian operators last month found that 61% think telecoms will be less affected than the rest of the economy. And 58% feel the Asian telecoms market would be less affectedly than other telecoms markets.

Ten percent expect industry sales to increase while 38% expect sales to grow marginally slower than last year. Almost half of the respondents plan to maintain their headcount over the next 12 months, with 21% planning to boost headcount.  

The outlook on the cost of capital is mixed with 36% expecting the average cost to be higher than over the last year while 33% expect it to be lower.

Ovum analyst Nathan Burley says that the early signs in Asia are that mobile operators will be more resilient than most other industries and so far the impact is still modest and yet to be significant.

For insight into how operators can use the down market to their advantage, Telecom Asia asked a cross-section of analysts and industry insiders for their strategies for surviving the downturn. The result is six strategic moves operators can take to not only cut costs but to expand.

Speculation to drive M&A

Market uncertainty has pushed the value of many companies well below their intrinsic worth, creating buying opportunities for those on the look-out for bargains.

For many telcos and technology suppliers, risk aversion will rule, and we fear many will adopt a bunker mentality. Distracted managers will miss opportunities arising from the chaos and will be unprepared for the recovery.

We advise that, while caution is inevitable, a more aggressive strategy is advisable for those with tangible resources available.

Recent developments illustrate that there is still private equity interest in the global technology markets. Companies with a stronger cash position will be able to acquire competitors or partners with poorer cash positions, even if those partners or competitors have stronger product or services operations. Smaller companies that wish to remain stoically independent need to manage their cash position more strongly than ever before.

While cash management has always been important in business, the current recession makes it even more important. It is prudent cash management that gives businesses the flexibility to ride out short-term pipeline difficulties and to make tactical or strategic acquisitions when bargains arise.

Businesses, however, also need to remember that cash is not the only route toward consolidation.

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