We’re not financial analysts here, so I’m going to sidestep the discussion about whether or not we are in a recession or just a slow down. Instead, I suggest you read this great Economist article for some perspectives on recessions. I could see this going either way for the rest of 2008 and 2009. There are such vast sums being pumped into the system, the outcomes are extremely hard to predict. Whatever words I use below, feel free to read them however you like: I’m going to use the r word, slow down, slump, crunch etc. pretty interchangeably here to refer to the wider economy.

While the extent of the economic crisis is debateable, regardless there will be direct effects on digital businesses, operators, startups, device makers etc. irrespective of whether the world’s economies formally enter a recession or not:-

Consumer perceptions have likely been shaken by the extensive coverage of the credit crunch, housing market, stock markets, banks etc. These perceptions will effect consumer behaviour. Just as in a boom, perceptions can accelerate the rise, in a slowdown negative attitudes can turn a controlled dive into a tailspin. We’ll be able to spot how consumer activity has changed when the latest Forrester consumer survey data comes back in a few weeks time.

In countries where the housing market is locked up with negative equity, or sharp price falls, that make moving logistically difficult there may be a retention benefit for fixed operators. Moving home is a key decision point in life when consumers are forced to reconsider what services they take. If people move less, this decision point won’t come up.

Broadband and TV is an essential part of life now which will limit churn due to a slump. I strongly believe that home broadband, and even pay TV, will be resistant to a slow down. Few consumers will wish to end home broadband access if they have time on their hands and need to job hunt, or have renewed impetus to use the Internet to bargain hunt for cheap deals on utilities or retail. Similarly, consumers with more time, will have more time for entertainment, although I do see consumers becoming more likely to switch down to cheaper packages with the same operator, especially where they pay for premium channels.

If access to capital is difficult for any appreciable length of time, then operators’ new network spend will likely be deferred. Fibre roll outs will take many years, rather than a few years. Current DSL and cable will dominate for longer. The result is that current home broadband networks will have to last. Product managers must become more creative with packaging and adding new features cheaply. In mobile, the much heralded WiMAX networks may never launch in Europe: WiMAX has, perhaps, a small window of opportunity after which cellular mobile broadband will be ubiquitous. If they miss that window, WiMAX will be in trouble.

(Some) Consumer product pricing will be less suicidal. This is perhaps a little controversial. In the boom, we’ve seen repeated examples of over-aggressive pricing, which was not profitable or sustainable in the medium term. In a slow down, few operators will be prepared to take such a cavalier approach to revenue and profits. Recent examples of such suicidal pricing include the mobile broadband offers in Austria and the UK.

Consumer prices for broadband and mobile will remain under pressure. Despite the above note about an end to suicidal pricing, operators will have to focus on value and price in a softer economic environment. Ideally, operators should pursue both approaches: tactically adding more features/texts/minutes/speed/data volume to some packages to add value and defend prices; while tailoring no frills but low price packages to other segments. Both the home broadband and mobile telephony market are mature or fast maturing, this would have happened to an extent regardless of the wider economy, but the crunch will accelerate such moves.

Unprofitable products will be killed if the slowdown continues. We will see a weeding out of free, advertising-supported, and even some paid services that are not delivering financially. This opens opportunities for competitors with a better business model to clean up. I see a lot of the online video services at risk here, as well as some telecom operator IPTV services and cable provider free video on demand services, but there are many others too.

Operators will have the option to buy Internet assets much more cheaply. Given the above, I suspect many start-up investors will be keen for an exit at a much lower price than they would have required six months ago. Operators, for the most part, are generating very significant quantities of cash. Should they choose, they will be able to select from a wide menu what they wish to take on to support their long term strategies. Many of these options will be poor buys, but there will a few bargains mixed in.

There are many other likely effects. If you’re a client please send us an inquiry and I’m happy to chat further and point you to the relevant upcoming reports on the impact of the economic slow down on your area.

Whether you are a client or not, please join the discussion with me on twitter.