The dot-com bust of 2001 was devastating not only to the internet industry, but also to global telecoms, as job losses reached about 500,000 and a number of firms were forced under. The effects of that particular recession lasted a long time, and just a short while after the situation appeared to have stabilised itself, the industry stands faced with yet another global economic downturn.
The mobile industry is not alone in feeling the pain of this recession, with very few industries immune, but that offers little comfort to a sector which knows the toughest times may still be yet to come.
Firms like Canada's Nortel have already cracked under the economic pressure, filing for bankruptcy back in January. Ericsson has already had to axe 5000 jobs, Motorola has recently laid off 4,000 employees as part of what it calls an "existing cost cutting strategy" which has already seen 10,000 jobs go, and even Finnish phone giant Nokia has announced layoffs and factory closures.
Financially, the climate is bleak as consumers rein in spending. Motorola recently posted a 25 per cent sequential decline in handset shipments to 19 million units, Sony Ericsson's shipments have slipped by 1.5 million units from 25.7 million to 24.2 million, and Nokia, Samsung and RIM also all shipped less in the fourth quarter than previous analyst estimates.
Back in November, mobile network operator Vodafone announced it would be cutting costs by approximately £1bn pounds, and other operators quickly followed suit as analyst firm Frost & Sullivan predicted 2009 would be "arguably the toughest economic year since 1992".
At Mobile World Congress in Barcelona this week, the downturn was the topic everyone wanted to talk about. Surprisingly, however, the consensus seemed to be that rather than the financial crisis causing the problems in the mobile industry, it has simply acted as a catalyst to an unavoidable situation.
The main reason most point to for this inevitable fall from grace is that mature mobile markets have been under increasing pressure over voice costs, made more acute by additional regulatory pressures. With customers wanting to spend less and maximise their money's worth, mobile carriers are finding they have an uphill battle to win or even just keep customers, which is taking its toll on revenues.
"What we're going through is more of a fundamental economic reset as opposed to a recession and it's going to take some time before economies around the world really re-establish themselves and we get consistent growth again," said Microsoft chief executive Steve Ballmer at the unveiling of Windows Mobile 6.5 at MWC. "No industry is immune to this economic reset, including the computer industry and the mobile industry. And as people struggle throughout the world to really make every dollar count they're going to expect us in the mobile industry to offer devices and services which offer greater and greater value."
Even the emerging markets, which many firms have pinned their hopes on, are not providing much cause for optimism of late. Whereas customers in the developing world may be able to scrape together enough to buy an entry-level, basic £15 handset, firms are discovering those same people are highly unlikely to splash out a further £40 for an upgrade.
In mature markets, too, people are replacing their phones with much less frequency due to longer contract lengths and loyalty incentive programmes. These offer SIM-only contract tariffs, allowing customers to forego a new handset in exchange for reduced usage costs.
So what can the mobile sector do? The answer is far from clear cut. There is talk of carriers temporarily contracting their spending for three to four quarters until the market picks up again, but many also see this as a danger which could result in a spending glut.
There is also much discussion over whether carriers should continue to channel money into new markets, which usually require hefty infrastructure investments, or cut back and focus on markets where they already have an established base. On this, opinions are very much divided, with some analysts saying that a scale back in emerging markets makes sense, while others point out emerging markets are where all the growth is going to be in the future.
Also, a focus on emerging markets does not necessarily have to be as expensive as many believe. Vodafone best illustrates this by frequently transferring its resources from market to market, helping to offset investment costs. When Vodafone decides to roll out a next-generation infrastructure in the mature market, it redeploys its old systems to the developing world. This is a model many seem keen to follow.
Speaking during a keynote about future investment and expansion at MWC, Vodafone's chief executive Vittorio Colao called for more collaboration across the mobile industry as a way of beating the recession.
"We must be smarter in how we co-operate with content suppliers, device vendors and equipment manufacturers," he said. "There is a growing pressure on consumer pricing and an increasing threat of commoditisation."
Clearly, operators will have to make tough decisions about where their capital expenditure goes, especially if they are involved in substantial international investments. Ultimately it will be the smaller, unaffiliated carriers that will face a sterner test than their larger competitors because they are not big enough to raise the capital needed to diversify and effectively compete.
The general mood appears to be that the time is right for significant market consolidation too. Companies like Nokia-Siemens and Alcatel-Lucent may be just the first in a long line of mergers owing to persistent price pressure.
Doubtless the mobile industry will be hard hit by this crisis and job losses will likely reach unprecedented levels. Within this depressing reality, however, some are finding cause for optimism, predicting the crunch may help the industry shed some of its dead weight, streamline itself and push forward.
Source : http://www.vnunet.com/