In the current economic context, Nokia's financial results were expected by many to be a good indicator of how the crisis could impact the telecom sector.
– Nokia mobile device volumes=117,800,000 units / +5% yoy
– Nokia sales: -5% yoy
– Reason is quite simple: Average selling price is going down with an increase in volumes in emerging economies (only Europe and North America showed a decrease in volumes yoy, respectively -5.5% and -16.7%). Nokia expects worldwide industry volumes to reach approximately 1,260,000,000 in 2008 vs an estimation of 1,140,000,000 in 2007 (always more explicit to present such high figures that way)
– Nokia sold 16M converged devices (-500,000 vs Q3 2007) among which 9M NSeries devices and 3M Eseries. It represented 14% of total sales in volumes!
So all in all Nokia seems to have resisted pretty well and delivered a reassuring message via its CEO: "With our scale, brand, improving product portfolio and low cost structure, we believe Nokia is well positioned for the current times." (my insistance).
At this stage, it is difficult to extrapolate those results to the whole telecom market. Here are some random initial thoughts to be taken with a pinch of salt:
The telecom sector could potentially show a relative (does not mean at all it will not be impacted) better resistance to the crisis due to the cyclical nature of the industry (importance of pay-monthly bundles, to the exception of countries with high-prepay penetration such as Southern Europe), long lock-up periods (generally between 12 and 24 months depending on countries), limited exposure to financial debt in case of credit crunch (in this regard, Orange�s situation is very different from the 2001 crisis), limited dependence on energy costs (primarily electricity power for the base stations), limited household spent on telecom expenses (around 3% in Western Europe), … Regarding inflation and budget households it might however be a different story in developing economies.
– The telecom sector is potentially more dependent on regulation issues particularly in the mobile space (new spectrum auctions, pressure on roaming / SMS / voice termination rates). In the fixed space, it is possible that significant investments may be postponed (e.g Fiber infrastructure) and that the real estate crisis may have an impact on the acquisition of fixed lines. Governments and regulators may be more flexible in this regard. Decisions to be taken on new market entrants and on digital dividend auctions will be all the more interesting to follow.
– Some companies will try to leverage the crisis to reduce costs a step further, outsource some elements of the value chain and increase pressure on suppliers or even acquire companies in the context of assets devaluation: this is particularly true for sub-segments where consolidation is going on (mobile content).
– Consumers will probably try to optimize their mobile telecom budget when renewing their contract / handsets. Replacement cycle may be increased if operators need to save costs on subsidies. However, it does not change the fact that increasingly carriers are offering unlimited bundles and packaging services into voice bundles. Face value perception of multi-play offering (triple, quad play) might be slightly more difficult to market. Hence the need to focus on pricing and value for money. There are thus potential opportunities for basic/simple offerings centered around voice/SMS such as SIM-only cards and low-cost brands.
– The main challenge is probably the growth rate of non-basic telecom products. Data and content revenues may be at stake or uptake may take longer for mobile data, video/TV. Mobile marketing and advertising spent may remain limited for an even longer period of time due to the lack of proven ROI and the infancy nature of the channel. In this regard, there is still a very long way for Nokia to generate significant revenues from its new divison "Services and Softwares". They represented EUR 115 M (net sales in Q3 2008). Not bad per se but a mere 0.9% of total revenues for the quarter. This ratio will be interesting to follow over time.