When the economy goes rock bottom, it makes little sense asking what it would mean to one component. But what exactly the impact of the present financial crisis on telecoms? This is what Spencer E. Ante thinks:
The $1 trillion telecommunications industry has long been one of the most resilient parts of the economy. But as the financial crisis has intensified, it has recently become clear that telecom can’t escape the fallout of the credit crunch.
Although most analysts believe the damage won’t be nearly as bad as the last telecom bust—when hundreds of firms went bankrupt, including giant Worldcom—there is growing evidence that the financial crisis is going to depress the debt-heavy telecom industry. To start with, rising capital costs are likely to take a bite out of earnings. In addition, the softening economy will probably crimp demand for such telecom services as land lines, cell phones, and Internet connections. Over the last week several Wall Street analysts trimmed their 2009 earnings estimates for AT&T, Verizon Communications, Sprint Nextel, and other operators. “Everyone is going to pay more for credit,” says Craig Moffett, a senior analyst with Sanford Bernstein who has been bearish on telecom stocks.
A telecom slowdown could ripple through the technology sector. If the operators’ cash flow declines as expected, that’s likely to cause them to cut back on their capital spending plans. This would hurt the primary equipment makers that supply gear to the industry, as well as those that sell to them. It would also slow down the build out of future wireless and terrestrial networks.
Read the full article in Business Week here.