It’s the Economy, Stupid!

It’s official: The global economy is in a recession. We’ve moved past the point of asking “Are things slowing down?” to “How long until we recover?” There are many varying opinions for answering these questions ranging anywhere from “a couple of quarters” to “get ready for a nuclear winter!” Since I cannot predict when things will actually pick up, I will limit myself to commenting on how the global economic situation could affect the telecom industry.

I’ll start with the good news. Recessions generally have a positive impact on technology and specifically networks. As consumers and companies look for ways to cut spending, they increasingly turn to technology to help offset costs: teleconferences replace air travel, online news replaces periodical subscriptions, self-help Web sites replace call centers, trips to the movie theater and mall are substituted by online entertainment and shopping, and newer, faster, more efficient computers and servers replace older, slower, more power-hungry models. In today’s networked economy, electronic communication in general and the Internet specifically have become a part of everyday life, a necessity even for a larger part of the world population. As a result, we may see a spike in traffic as the 1.5 billion Internet users and corporations turn to networks to optimize their spending.

Despite all this, though, there is no doubt that economic pressures will cause delays in spending and cutbacks in several areas. CIMI Corp. says many carriers have delayed some planned spending for next year, but very few had reported significant cuts in their budgets. On the other hand, the Wall Street Journal reported on Nov. 10 that carriers across Europe are seeing significant drops in spending on mobile phone calls. This shocked the market, as it suggests consumers view mobile phone calls as more discretionary than expected. An article on changing demands in technology in the November 24th issue of Business Week also reported that in the United States, broadband service providers are seeing drops in the numbers of subscribers. Further, the economy is affecting new deployments of higher speed broadband in an indirect way. According to a recent Light Reading Insider report, the slowdown in housing construction is affecting the rollout of FTTH and GPON services.

In order to make some sense of today’s economic situation it may be useful to look back in history. Rolling back to 1990, we see some similarities between then and now. At the end of 1989, U.S. auto sales were at the slowest they had been in a decade; U.S. GNP was growing only 1 percent; inflation, which had been rising sharply, took a sudden sharp turn south; and manufacturing output in the United States had declined. However, barely into the 90’s the tech-heavy NASDAQ Index initiated the steep growth curve it would follow throughout the rest of the decade. Of course, by now we know that much of this culminated in the tech bubble, but it was also the period during which companies such as Cisco Systems Inc., Nortel Networks, Extreme Networks, Foundry Networks (and eventually Juniper Networks!) experienced rapid growth. The accompanying wave of technology innovation ultimately led to a global transformation of the telecom market. So, call me an optimist (after all, I am a marketer), but I see good things happening in the future.

Luc Ceuppens is senior director, head of product marketing, High-End Systems Business unit at Juniper Networks (JNPR).