Weaker Consumer Spending

Consumer spending turned south in the summer of 2007, according to surveys conducted by the ChangeWave Alliance. ChangeWave also found that business IT spending dipped in the first quarter of 2008.

In January, 34 percent of ChangeWave respondents said they planned to spend less during the next 90 days than they did a year ago. About 29 percent said they would spend more.

Business Hiring Heads South

Business hiring declined in the fourth quarter of 2007, according to survey data compiled by ChangeWave Alliance. That lead ChangeWave to declare that a recession already was underway.

Enterprise IT Spending Heading South?

ChangeWave’s latest enterprise IT spending survey points to a negative growth rate for the second quarter of 2008, suggesting that U.S. business spending has already in a recession of sorts.

Some 23 percent of respondents report their company’s IT spending will decrease--or there will be no spending at all--in the second quarter.

About 15 percent say spending will increase.

A total of 2,013 respondents involved with IT spending in their organization participated in the February survey, ChangeWave says.

The last time such negative growth was reported was August 2001. And you might recall that was the time when the Web and telecom industries melted down. The ChangeWave data show a slowdown in businesses of every size.

About 43 percent of respondents say their companies will spend normally. About 53 percent say their firms will slow spending.

In the first quarter, about 10 percent of respondents reported they had spent more than planned.

Another 27% say they’ve spent less than planned. It appears storage has been hardest hit. But spending on enterprise applications, servers and security also are weaker.

That doesn't seem to apply to smart phone activity, though. Respondents say their firms will be spending more on smart phones than before.

It's starting to look like the spending slowdown by business users already has begun, whether or not we find out later that the U.S. economy entered a formal "recession," which is to say back-to-back quarters of negative growth.

Consumer, SME Spending Tightening?

Large incumbent telco and cable companies say they haven't yet seen any adverse sales or churn impact because of economic stringency. But there are some signs this is not true, and has not been true, in parts of the consumer and small business and medium business market segments since perhaps last summer.

Cbeyond, which sells to small business, reports it began to see higher than normal credit issues in the third quarter, forcing it to tighten its credit rules. The result was a churn rate 40 percent higher than is typical for Cbeyond.

Leap Wireless, which sells heavily into lower-income customer segments, likewise saw an unusual and high rate of customer churn in the third quarter last year, an anomaly the company says can be explained by expansion into less mature markets as well as deliberate policy changes in the prepay and handset areas.

Now Henry Blodget of Silicon Alley Advisor says he detects real softness in small and medium business spending on advertising since the Christmas or holiday season. He says a source workking for a digital advertising company has seen severe drops in digital ad spending at small- and medium-sized enterprises in the past few months.

Blodget says he was told one client that had $4 million to $5 million in sales in the 2006 Christmas season had only $1 million in sales this season.

The source believes that Google is seeing, or will soon see, similar drops in spending in the SME segment.

It will be hard to separate out the many threads here. Both Cbeyond and Leap Wireless are in the middle of major market expansions, and each has taken internal actions which could account for nearly all, if not all of the unusual churn activity.

Beyond that, Leap Wireless executives have been watching for signs of economy-specific impact for quite some time, as the background rise in gas prices, sub-prime lending and housing slowdowns also could create higher churn, lower net addition effects.

Even slowing broadband or wireless subscriber growth alone will not be evidence of economic weakness, as both of those markets are nearing saturation. Growth necessarily will slow, and the economy has little to do with the slowing.

Lower housing starts plausibly are an issue, but only at the margin. The simple fact is that both broadband and wireless penetration rates now are nearing a natural limit.

Both Cbeyond, Leap Wireless and any other service providers expanding rapidly into new markets are going to have higher churn for new customers than is typical for customers they have had for several years. The reasons are simple enough. Customers who leave have found reasons not to continue. By definition, customers who stay for several years have found good reasons to do so.

They have learned how to use the services, are getting acceptable levels of service, correct bills, prompt resolution of issues and other "use" experiences that confirm they have made a wise choice.

So higher churn, in and of itself, will not mean economic softness is the culprit, at least for firms expanding rapidly into new markets and adding new services.

Over the next couple of quarters, all observers are going to remain watchful for any signs economic issues are coming into play. So far there are signs--not conclusive by any means--of increased pressure in some consumer and SME segments. But so far it is hard to isolate economic issues from other background factors.

Slowdown? "Not Yet" Says Siemens

Siemens AG, Europe's biggest engineering company, probably will meet its 2008 sales and profit goals, and sees no sign that a global economic slowdown is affecting business, Chief Executive Officer Peter Loescher says.

That despite the statement that "it's clear that we're entering a phase of slowdown in the world,'' Loescher says. ``The impact for us as a company, we don't see it yet.''

Mobile Revenue Surpasses Landline in 2009

"Mobile service revenues will pass landline in 2009," says Arthur Gruen of Wilkofsky Gruen Associates, reporting on the latest Telecommunications Industry Association expectations for U.S. communications revenues. "It now is primary line erosion, as second lines erosion was finished some time ago."

That means there will be 150 million landlines in service by 2011, where there once were 286,000 in service in 2004.

About 82 percent of consumer voice subscriptions are sold as part of a bundle, up from 14 percent in 2005 and 40 percent in 2007.

Wireless growth slowed to single digits in 2007 for the first time, however. Still wireless revenue of $200 billion in 2011 will exceed wireline revenue by 26 percent.

About 84 percent of wireless service revenue growth comes from data and data will be 35 percent of total revenue in 2011, up from 16 percent in 2007 and six percent in 2005.

Overall wireless penetration will hit 90 percent in 2011, up from 79 percent in 2007.

In 2011, Gruen also predicts VoIP will represent 37 percent of landlines, serving 33 million subscribers.

EU Approves UK Broadband Deregulation

The European Union Telecoms Commission has approved an Ofcom proposal to deregulate the U.K. broadband market UK broadband market where there are four or more actual or potential providers serving areas with more than 10,000 homes and businesses.

In practice, that means deregulation for areas covering around 65 percent of all homes and businesses.