Telecom's mirror image twin

21 Jul 2008
00:00

If the telecom industry has a cousin, it's aviation.

Like telecoms it's a highly-regulated service business based on access to scarce infrastructure. The service providers - also called carriers - buy their equipment from specialist vendors.

Of course, the aviation technology cycle is massively different. Where telcos are at the mercy of the creative destruction of Moore's Law, airlines are just taking delivery of the first generational change in passenger planes in 40 years.

Another difference is that, telcos are grinding out solid profits - not exactly bumper returns, but positive income nonetheless - while airlines are on the edge of a precipice. The BA chairman calls it "perhaps the biggest crisis" in the industry's history, the Economist reports.

Airline trade association IATA predicts that, thanks to the uncertain global economy and the stratospheric price of aviation fuel, the segment will lose $6 billion this year.

By contrast, the airline manufacturers are sitting on a jaw-dropping order backlog: $271 billion worth, in Boeing's case. Airbus's customers are waiting on 3,700 planes, or six years of production.

Meanwhile, their counterparts back in the telco industry are swimming in red ink. Technologies and customer requirements have changed drastically over the years, but clearly the big difference is competition. Aircraft manufacture is a duopoly; the comms equipment market is fiercely competitive and all vendors are doing it tough.

Which is why Nokia Siemens Networks surprised last week when it reported an 18% boost in sales for the quarter, with a loss of just EUR47 million loss. Gross margin was 28.2% on EUR4.07 billion revenue, up from 15.5% a year ago when, excluding special charges arising from the just-completed merger, it lost EUR400 million.

Higher demand in China, Latin America and EMEA more than made up for the decline in sales in Asia-Pac, its biggest market.

One quarter doesn't make a trend, but let's see what Ericsson and Alcatel-Lucent can tell us when they announce their quarterlys in the next eight days.

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