2009 Telecom Outlook: A Challenging Year And Emerging Opportunities

"This is the exact time to invest - if you can - because not only is there opportunity, but there are lots of resources out there." - Mike Lazaridis

Picture: Research In Motion co-CEOs Jim Balsillie (left) and Mike Lazaridis THE CANADIAN PRESS/Nathan


We are one quarter into 2009, a year that is turning out to be one of the most challenging to navigate in recent history. As this first quarter comes to an end I want to share my thoughts on what to expect for the rest of the year.

Like other sectors of the economy, the Telecom industry faces huge economic challenges as the United States and other nations slip into a global recession:

• The Telecom Industry will face a slowdown in 2009; IDATE reports that the telecom equipment market will suffer a downturn with an expected growth rate of 1% compared to the year before. This will affect infrastructure and mobile phones; IDC predicts worldwide mobile phone shipments to fall 8.3% in 2009.
• Companies will face the downturn by limiting CAPEX and with more layoffs: Nortel recently announced plans to reduce its workforce by another 3,200 positions; Nokia also announced they will cut another 1,700 jobs as the economic slowdown leads to lower demand for mobile phones. Other companies announcing layoffs include Comverse, Sony-Ericsson and Microsoft, who will cut five per cent of its workforce over the next 18 months.

These are challenging times for everyone but the outlook of the telecom industry increases in complexity as there are indicators that it is reaching a tipping point. Some of these trends are made worse by the economic downturn but the industry was already facing decreasing margins and a flattening growth rate for voice before the crisis. The decline of wireline voice has been evident for a few years and this trend has now reached wireless voice. This has affected infrastructure vendors who in the last five years have faced decreasing margins and the commoditization of their products.

The emergence of nontraditional competitors with new and innovative services is another indicator that the industry is reaching a tipping point. Until recently, non traditional players had limited access to the mobile market but the launch of the iPhone and the AppStore has changed the power balance. Developers now have access to the mobile market without getting first an operator's blessing; these new players now have the capacity to influence the market.

There is no question that this will be a challenging year but it is also evident that the telecom industry is full of new opportunities. Traditional players like Nokia and Nortel continue to shed jobs but a recent report by Canada East shows that companies like RIM, Bridgewater Systems and Open Text are defying the economic downturn by growing operations. Last year, RIM expanded its workforce by 50 percent, hiring about 4,000 employees and earlier this year co-CEO Jim Balsillie shocked many observers when he revealed another 3,000 new job openings as the company grows globally.

Mobile applications and smartphones will drive growth in 2009 and companies like Apple and Research in Motion will benefit. Apple's AppStore is expected to become a $1 billion business by the end of 2009 (see Mobile Applications, Smartphones will drive industry growth) and other companies have announced an AppStore including RIM, Microsoft and Nokia.

Despite the economic downturn, new players will grow and benefit from the new opportunities in the market while traditional infrastructure vendors continue to struggle through the recession. It is expected that the market for infrastructure vendors will recover in 2010 but it looks like this will be a big year with many opportunities for smartphones and mobile applications.