ITU Issues Views on Recession Impact on Telecom

At a high level, nobody is completely sure consumer behavior in this recession will match behavior in past recessions, for any number of painfully obvious reasons. There also is some thinking that as broadband had not attained mass adoption status during the last recession, this will be the first test of demand elasticity for fixed broadband.

And nobody seems to believe that wireline voice will in any way be helped. There is probably less consensus on what will happen in the wireless business, but wireless service providers likely are among the best-placed industry segments during the recession, in part because of greater "flexibility in their cost structure and capex and fixed-mobile substitution," a new report by the International Telecommunications Union says.

And though broadband access demand is believed to be relatively inelastic, that almost certainly will not be the case for fixed voice.

"Telecom services are likely to come under further price pressure, as operators will fight for a more cost-focused customer, resulting in further erosion of margins," the ITU suggests. And that is going to favor mobile operators as well.

"The more flexible cost structure of mobile networks means that mobile operators are winning more of the lower usage end of the fixed services customer base," the ITU says. "This has happened in voice, and 2008 has demonstrated that mobile broadband can substitute for light-usage DSL."

For countries where data services are popular, data revenues could be adversely impacted by a reduction in consumers’ real incomes, ITU says. Also, more consumers are likely to opt for prepaid and flat-rate packages for telecom services to try and control their expenditure.

Unemployment may accelerate fixed-mobile substitution, with consumers preferring to switch
fully to mobile services. Young people may delay decisions to adopt a fixed broadband or voice line in addition to mobile service.

Unemployment will accelerate households’ decisions to give up fixed services, either because they are unaffordable, or because a mobile alternative is cheaper.

"In terms of practical pricing strategy, the economic slowdown will increase pressure on operators to reduce prices," the ITU says. Operators will find it harder to promote value-added services and the adoption of new services such as mobile TV will be affected, ITU believes.