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Economic downturn expected to hit the telecom sector

UNDER the influence of the global economic crisis, the general business climate has significantly worsened in countries such as Slovakia and this is expected to be reflected in the telecommunications sector. According to an analysis conducted by Deloitte Slovensko, a slowing in the growth of telecom revenues is expected for 2009 in comparison to the 3.7 percent overall growth of the Slovak telecommunications market and the 5.3 percent growth of its mobile services segment recorded in 2008.

UNDER the influence of the global economic crisis, the general business climate has significantly worsened in countries such as Slovakia and this is expected to be reflected in the telecommunications sector. According to an analysis conducted by Deloitte Slovensko, a slowing in the growth of telecom revenues is expected for 2009 in comparison to the 3.7 percent overall growth of the Slovak telecommunications market and the 5.3 percent growth of its mobile services segment recorded in 2008.

The expected drop in revenues is directly linked with customers’ reduced willingness and greater caution in subscribing to new services or extending existing contracts. Currently, 55 percent of Slovak customers have signed subscription contracts with periods of up to two years at most. From the viewpoint of telecoms operators these customers represent a so-called guaranteed income stream for the upcoming period of time and thus are of ‘high value’ for the companies.

Corporate clients will focus more on increasing the effectiveness of their businesses, especially by decreasing operating costs in areas like human resources, optimizing of processes, and more careful examination of other costs, which will also finally show up in expenditures for communications – telephones, internet, or connections between a company’s branches.

Customers, both residential and business, will therefore focus mainly on the value which they can get from the telecommunications operator and the price will be decisive, too.

In the area of mobile services, it is expected that the number of subscribers will exceed three billion people worldwide in 2009. This assumption is supported by the fact that services in the telecoms branch assure connections between people, the absence of which is unimaginable today.

In the course of the next decade it is expected that global penetration of mobile services will reach the level of 100 percent.

Penetration of mobile services in Slovakia already exceeded 100 percent in 2008. According to the latest surveys in the study “Mobile Telephony in CEE countries 2008”, about 86 percent of people in Slovakia own mobile phones, while about 9 percent of them have more than three SIM cards.

After years of development and building networks as well as focusing on the boom in data services, and in spite of the economic situation, the current trends have shifted towards providing innovative services – regardless of the type of network and the technology used. The common point of these innovations is always ‘to be online’, using the services through the internet.

Recently, a new group of people have acquired access to the internet – those who do not own a computer and for whom web services have been previously been inaccessible. These are those people who are discovering the world of the internet through their mobile phones, and the trend is growing in spite of the recession.

Among the services we expect to be hits in future periods, are services, or packages of services, covering these spheres:
- person-to-person (e.g. voice SMS, mobile IM, video sharing, etc.)
- person-to-community (e.g. friends’ finder, video blogging, etc.)
- personalization (e.g. skins, ring tones, wallpapers, etc.)
- information (e.g. mobile search, mobile tour guides, etc.)
- entertainment (e.g. mobile TV, multi-player games, etc.)
- business (e.g. mobile e-learning, etc.)

With the advent of these services, the further penetration of smart-phones can be expected, with which it is possible to use these services with added value. Smart-phones, intelligent mobile terminals, have an integrated operative system, like personal digital assistants (PDA), which enable their owners to record and install a large number of software applications from third parties.

Connected with the start of the above-mentioned services, it is expected that users will load more than 15 billion applications into their mobiles in 2009, of which the majority will be from sources managed by producers of mobile appliances, producers of consumer electronics, or software companies.

Operators might increase their profits by being more involved in provisioning of these services together with third parties and application developers. Customers will benefit from the increased trade in applications but they should also take care of the seemingly unavoidable risk that some applications might be infected with viruses.

In an effort to reduce prices, mobile operators who represent the main distribution channel for launching smart-phones to the market, may revise the costs on subsidized phone sets. They should also focus on development and marketing of smart-phones. Their main users are willing to pay for them in spite of the hard economic times.

With the growing pressure on telecommunications operators, the fight for customers will continue with the aim of stabilising their revenues. To acquire new customers, the operators are expected to follow the trend of gradual commoditising the services offered – price packages, or various price advances and reductions tailored to customers’ needs, more services for the same price, and so on. With existing customers, the stress will be put mainly on various retention programmes focusing primarily on market segments with the highest added value for the operator.

Telecoms operators will orient themselves to the optimisation of their own cost structures. It can be expected in the upcoming period that investments directed especially to the development of network infrastructure or to the development of new products and services will be limited only to those which are inevitable or which will have the biggest return on investment over the long term. This means that the telecoms operators will strive to use their assets in the best possible way.

As a result of the ever increasing pressure of competition in the market, some operators may feel enormously growing pressure from their larger competitors whose interests will be further directed to increasing their market share, as well as enhancement in the portfolios of their services, possibly in the form of a profitable acquisition of a weakened competitor.

This scenario would lead to greater consolidation in the telecommunications market.

Michaela Hrachalová and Peter Horovčák are managers of the Department of Consultancy Services, Deloitte Slovensko

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