How Well Will Communications Fare in Next Recession?

The communications business might be more resistant to economic downturns that many other more-cyclical industries, but it is not by any means immune. 


During and after the Great Recession of 2008, it appears consumers shifted their spending on video and communications, with some of the biggest reductions occurring in the purchase of "premium" video channels such as HBO and fixed network voice lines. But even the "hot" mobile business saw reversals. 


Figures compiled by Informa Telecoms & Media suggested the number of net new mobile phone subscribers fell sharply in the fourth quarter of 2008 and growth of mobile data revenue stalled for the first time. 


Figures from Informa Telecoms also sugested that the total number of new users for mobile phone services fell by 15 percent to 162 million in the fourth quarter of  2008. 


So it is not necessarily reassuring that, as Europe apparently heads toward another recession, service provider revenues generally were hit in the first quarter of 2012. That might be an early indicator. 


It isn't clear whether the U.S. market already is in recession, or is headed there. But there are enough serious warning signs to wonder whether another period of consumer stringency is coming. 


The Bloomberg Consumer Comfort Index, for example, has dramatically retraced ground from its April 15 high point of minus 31.4. In just a short period of a month's time, it has consistently deteriorated, reaching negative 43.6 in the just reported week ending May 13. That may in fact be offering an early signal of recession.


If so, neither telecom, mobile or video service providers will escape some damage. 


Some of the issues are structural, though. USA Inc. provides a good overview of the structural issues. 


A few decades ago, some smart economists argued that federal deficits "didn't matter." Of course, those statements were made under vastly-different economic conditions. Deficits were far smaller and financing was largely internal, not external.


To put the matter bluntly, when U.S. citizens were funding the deficits, a default on those obligations would have been an internal matter. Today, with sovereign debt being the way those deficits are funded, default would be vastly more dangerous. 


In other words, we might default on obligations "we owe to ourselves." It is quite a different matter to default on "obligations we owe lenders in other sovereign nations." These days, deficits most assuredly matter. 


The other problem, aside from the structural deficits, is anemic job creation. Labor force participation rates, the percentage of people of working age who actually are working, is at dreadful levels.