Looking for the Gold in Global Communications

By William Dowell
The Global Post, February 2009

Want to know where to put your investment dollars while the global economy spins further into a dizzying nose dive? Take a look at information and communications technology (ICT)—at least that’s the message in a new report, “Confronting the Crisis,” just published by the Geneva-based, International Telecommuncation Union (ITU), the UN agency which coordinates worldwide communications networks.
While the overall communications industry is taking an economic battering, the report suggests that canny investors will see potentially lucrative opportunities in select areas that are shining in contrast to the otherwise depressing financial debris of the crisis. The thing to look for here is “disruptive technologies,” in other words, new businesses that take advantage of what is likely to be a major paradigm shift.
Crises often provide a fertile environment for new technologies to gain a foot hold, and past history has shown that this can be an optimum time for companies that are tuned to innovative cost-cutting solutions that increase efficiency. Google was launched in 1998, in the middle of the Asian financial crisis. Skype took off in 2003, at the height of the dot.com crash. Another market winner was Amazon, which used the net and the latest technological breakthroughs in logistics to speed up retail marketing while reducing prices.
In contrast to conventional equipment manufacturers, such as computer chip-maker Intel, which saw its revenues drop by 23% in the final quarter of 2008, Google’s final quarter registered an 18% increase over the same period in 2007. Even more impressive, it actually gained 3% in revenue over the preceding quarter at the very moment the crisis was reaching a fever pitch.

The ITU report points out that both Google and Amazon complemented and improved the wider information technology ecosystem instead of trying to cannibalize it. It didn’t hurt that both companies relied on business models with low start up costs. An added advantage for market changing companies is the fact that during economic downturns computer processing power and bandwidth costs tend to become cheaper.
A number of areas are likely to profit this time around. Lower priced higher performance consumer broadband is a sure winner. “Netbooks” which are half the price of full-featured laptops are experiencing a surge. Cloud computing, which lets you rent net-based software instead of buying it outright is increasingly popular. Even digital television, is likely to enable cost reductions by freeing up frequency spectrum that used to be reserved to prevent interference from noisy analog channels.
Some of the biggest growth, though, is likely to be in more basic, everyday technologies. Mobile phones and portable computer broadband access over cell phone networks are two leading candidates. Much of this growth is likely to be concentrated in the developing world, which has been shielded from the crisis precisely because it is on the margins of the global economy.

India, which passed the US as the largest cell phone market in 2008, added 10 million new mobile customers last September, and then an additional 10.4 million in October.
It’s not complete Nirvana. Indian mobile phone users have lower salaries so they pay less for subscriptions. For every customer that British phone operator Vodafone loses in England, it will need to connect ten new customers in India to maintain its revenues.

But the growth is nevertheless staggering. The world’s biggest mobile phone operator, China Mobile, added 74 million new subscribers in the first nine months of last year. That was compared to 55 million new subscribers for all of 2007.
Brazil added four million subscribers in 2008, double the preceding year. By the end of 2008, there were an estimated 4 billion mobile phone subscribers in the world—an increase of 650 million over 2007. By the end of 2008, mobile phone subscriptions added up to nearly one out of two people in the developing world.
Will they continue to use mobile phones in the economic downturn? The answer is that they don’t have much choice. The new mobile technology is increasingly vital to keeping the basic economy going in more and more countries. In Africa, for instance, payments and remittances in remote areas are regularly made by cell phone. Fishermen and farmers depend on current price information they get over their cell phones before deciding to go to market. With bankers in the leading industrialized countries acting like frightened deer frozen in the headlights of the financial crisis, the ITU suggests that much of the financing for this booming market may come from emerging markets in the south.
Broadband computer connections over cell phone networks is another area that is booming. The idea is to use a small thumb-drive-sized modem that plugs into the USB port of your computer to connect to broadband through your local cell phone operator. Introduced a year ago, the market has mushroomed to 30 million connections. Informa Telecoms and Media Group, an industry analyst, forecasts that it will increase by 50% in 2009 In several major European markets up to 15-30% of broadband subscriptions are now over cellular networks.
How does the US fit into this picture? The current scenario is not good. As the ITU sees it, the US is headed for a catastrophic internet traffic jam that will hit sometime in 2012. Upgrading the global internet is projected to cost $137 billion over the next five years. Network operators in North America are currently under spending by 60-70%. While US investment in upgrading the net is projected at $72 billion over 2008-12, an additional $42 to 55 will be needed to keep the US competitive. If commercial banks are still too traumatized to provide credit, Washington may have to step in or risk being bypassed by the global economy of the future.
The demands presented by climate change also needs to be taken into account. The carbon foot print for the worldwide communications industry is currently 2% of the global total. But it is growing by 6% a year as developing countries come on line, and could double by 2020. On the other hand, advanced communications can reduce the world’s carbon footprint by up to 15% by 2020 –roughly 7.8 gigatons of CO2 emissions a year--by substituting televised conference calls for the air travel needed for business meetings, and by improving the way it uses the electric grid. Since corporate social conscience is likely to be a major casualty of the crisis, the ITU recommends that communications be included as a significant part of stimulus packages.
Telecommunications can’t make up for the global downturn, but it nevertheless plays a significant role, representing 7.5% of global GDP. The global information and communications technology market is currently worth roughly $1.6 trillion. Any country that fails to invest in this market is likely to be left in the dust by more agile competitors. Crises come and go, but the need for communications keeps growing.