Dismal economic events have culminated in drastic declines of market valuation among companies in nearly every industry/sector, including impacts to telecom industry performance.? Capital spending constraints among carriers, and limited funds available to sustain (grow) telecom services over the next six- to twelve-months, may be outcomes of credit markets remaining restricted and overall GDP growth remaining tepid or even retracting. Telecom carriers often resort to credit markets for funding capital projects, while telecom equipment companies conventionally use equity share offerings in lieu of debt instruments. The outcome has been a disappointment, regardless of the selected financing mechanism.
As a result of weakening macroeconomic indicators, telecom carriers' capital expenditures remain limited in 2008 and early 2009.? There has been more selectivity on technology choices and leveraging cost-savings synergies, such as streamlining purchasing arrangements and reducing the number of preferred vendors.? Shareholders continue to foster an environment where executives are held accountable to focus more on balance sheet improvements, financial discipline, and improving free cash flow. ?
Telecom carriers and equipment providers that offer the most attractive opportunities are focused on third-generation (3G) wireless, broadband (DSL) and fiber-to-the-home/node networking. There are also a few market leaders that have proven able to survive the sometimes turbulent opportunity swings in the industry. It is our belief that in this uncertain stage of macroeconomic events, companies with strong balance sheets and firm net cash positions, along with sustainable dividends, provide respectable risk/reward profiles.? On the other hand, highly-leveraged companies should be avoided, at least at this economic juncture.
OPPORTUNITIES
The transient collapse of financial markets has become an indelible lesson to many of us.? With this we have witnessed that sector diversity is a less secure planning tool in today's increasingly correlated world markets.? However, there are some tactics and opportunities that may be appropriate to address the downturns in the telecom industry, should we be greeted with them again.? We consider the following: ?
- Necessity for Telecommunications - The need for telecom in both rural and urban areas, and its role in the infrastructure of both developed and developing markets, continues to grow. Wireless infrastructures and/or low-cost integrated IP voice and data wireline networks are necessities.
