Despite similarities to the 2001--2003 market downturn, Ericsson does not anticipate a major slowdown for the mobile telecoms industry. The company cites several reasons: operator have significantly strengthened their balance sheets, growth expectations are more realistic and network utilization is materially higher.
Ericsson also expects slowing GDP to cause less than proportionate declines in mobile and broadband revenue for several reasons: 1) there are better substitutes for traditional fixed telephone services (e.g. mobile, VoIP ) than previously; 2) term contracts and bundling make it
more difficult (or at least slower) for subscribers to reduce spending; and 3) mobile communications and the Internet are much more pervasive and engrained in today's society. Despite this, Ericsson noted that some operators in Western Europe have shown a progressive deterioration in their business during the year, which has negatively affected suppliers,
especially mobile phone manufacturers including Sony Ericsson. There is also a trend by major operators to preserve capital during the downturn. But here again, Ericsson expects a less dramatic reduction in spending on network equipment than in 2001-- 2003.
Ericsson's 2008 Annual Report comments on other significant trends for the industry, including the following.
Weakening Global Economy Affecting Mobile Handset Sales -- many operators are pushing SIM card-only plans to reduce subsidies and preserve cash. This is slowing the demand for replacement phones especially in the mid-to-high end price range as consumers postpone upgrading their mobile phones. The drop in replacement rates is most noticeable in Western Europe.
Positive Correlation between Broadband Penetration and GDP levels -- studies of the relationship between broadband penetration and economic development indicate that broadband plays a fundamental role in accelerating the economic and social development of a country. As already demonstrated by the mobile telephone, the ubiquitous availability of affordable communication services has a positive effect on a country's economy.
Fixed and mobile broadband Main Market Driver -- Ericsson expects the number of fixed and mobile broadband subscriptions to increase by a factor of 7 between 2008 and 2014 to almost 3.5 billion. Broadband Internet access revenues for fixed operators (including cable operators) are expected to grow from 20 percent to 35 percent of total revenues in the next five years. Similarly, data's share of mobile operators' revenue, which is currently some 20 percent, is expected to account for a progressively more significant portion of global mobile revenues over the next five years.
Broadband Access Creates Bottlenecks in other Parts of the Network -- the increased capacity of the access nodes brings pressure on the backhaul part of the transport network. The additional backhaul capacity must be provided more dynamically and more efficiently than possible with traditional backhaul solutions.
The Future of TV -- some 850 million households have television services of which only 20 million are currently served by IPTV. This number is expected to grow to above 100 million by end of 2014. Ericsson does not expect operators to
become marginalized as bit pipe providers.
Mobility is changing the Internet -- multimedia-capable mobile Internet devices and affordable mobile broadband access are harbingers of change. This will have the greatest impact on emerging markets where household penetration of PC s is slightly more than 10 percent compared with 60 percent in mature markets.
Operator Consolidation and Network Sharing -- Operator consolidation continues across all regions. In the Americas, consolidation has substantially reduced the number of operators. In Europe, mergers continue as well as other types of combinations, such as network sharing and outsourcing of network operations. In other regions, operator consolidation has led to the emergence of rapidly growing pan-regional operators, particularly in the CEMA markets (Central and Eastern Europe, Middle East and Africa). Ongoing operator consolidation, especially in Western Europe, where the technology shift for more efficient networks, as well as changing regulations, such as price caps for roaming and lower call termination fees, is affecting operator willingness and need to increase network investments in the near term. This trend is most pronounced for highly penetrated GSM networks.
Network sharing offers potentially significant CAPEX and OPEX savings to operators. However, Ericsson believes the overall impact of network sharing should ultimately be neutral for mobile equipment vendors.
Ericsson full 2008 Annual Report is available on its website.
http://www.ericsson.com
