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Credit Crunch

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Credit crunch has made a huge cry on the face of economy both in developed and developing countries. Many sectors of industries have gone far beyond of losing money. Our prime focus today is on telecom industry and the impact caused on it by credit crunch. But before we look deep into the pressure points within telecom sector let’s take a preview of what actually credit crunch is.

Credit Crunch: A Bigger Picture

• Sudden reduction in the availability of loans (or “credit”)
• Sudden increase in the cost of obtaining a loan from the banks

There are a number of reasons why banks may suddenly increase the costs of borrowing or make borrowing more difficult. This may be due to an anticipated decline in value of the collateral used by the banks when issuing loans, or even an increased perception of risk regarding the solvency of other banks within the banking system. The credit crunch began as a liquidity problem in the worlds intensely interconnected international money markets. The crunch came, as US mortgage banks found that rising interest rates meant many vulnerable borrowers could not afford to service their credit - and so defaulted.

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The past fifteen years of global growth provided the perfect opportunity to prepare our economy for the twenty first century but in spite such a growth UK is the least prepared major economy in the developed world to cope with the current financial turbulence. An economic slowdown even encourages some businesses to accelerate process change that require communications. The ominous analysis of credit crunch on telecom industry unlike other industries highlights some of the positive nodes because of this after-effect. It’s found that telecos need to adapt to changing consumer and business spending. AT&T CEO Randall Stephenson commented that “We’re really experiencing some softness on the consumer side of the house from the economy.” About 30 to 40 percent of CIOs claim their telecom spending budgets were sensitive to an economic slowdown. The overall analysis indicates that telecoms budgets will not necessary decline, but will likely be slanted more towards services and technologies that can help reduce overall costs and take environmental concern into account. EVUA an independent, non-profit, global ICT network user group for multinational companies, suggests that many members of EUVA expect no change in their budgets (with the exception of mobile data) in the coming year and, since traffic is growing rapidly in many years, this means that they expect more from their suppliers. But so far, the view is that telecoms will not be one of the immediate causalities in a slowdown or a recession. Indeed first quarter figures from telecoms operators have been reasonably healthy. Dresdner Kleinwort claims in their recent research that it does not believe the sector is heavily exposed to current macroeconomic issues. However, there are signs that some segments of operators’ customer bases will be affected: AT&T CEO Randall Stephenson, at investor conference claimed that the operator is disconnecting more home phone and high-speed internet customers for failing to pay their bills, a more advanced state of slowdown in the US. To say that telecoms will not be affected at all by the credit crunch is disingenuous. Also it is seen that with falling service and equipment prices, technology changes, and new competition from unexpected places such as power internet and mobile retailers and broadband services companies industry is grappling with its own crises. Mobile phones, internet now have become necessities of every individual, they do not serve as a status symbol to many, and as a result it would not be necessarily be the first cost to be cut. It can be said that telecom industry is isolated from many of the effects of global downturn. There is also a sense that telecoms could in some way benefit from the downturn. Consumers might start to view interactive home entertainment as a less expensive way of spending their leisure time. Business customers could start to consider the long-term value of investing more in equipment that means that they do not have to travel, providing a boost for tele-presence equipment and mobile data services. This not only provides a good way for reducing the carbon footprint but also reduces the cost of travel and property. “The other thing we are seeing quite a lot of enterprises is much more of a move towards managed services.” Paresh Modi, head of Vodafone Global Enterprise, said. The managed services deals will become more common among the enterprise users. Outsourcing will reach new heights as a result of continuous process. It is fair to say thus that outsourcing will be accelerated due to credit crunch as more and more companies will consider outsourcing as an option to reduce cost.

Predictions
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• Retailers, particularly those specializing in mobile industry, may have to diversify into related services.
• Telecom operators need to join hands and institutionalize for efficient ways of network sharing.
• Corporates will be forced to think positively towards business process change.
• Telecom operators will need to come-up with new service line with bundled services to retain customers and reward customers’ loyalty to maintain the grip of the market.
• Companies should look forward for better M&A opportunities as downturn could create consolidation opportunities across all parts of value chain.