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The financial crisis that erupted a year ago has shaken the global financial sector to its foundations and sent the economies of many industrialized countries spinning into recession. The size and scale of the global economic slowdown have proved staggering, with many OECD economies experiencing recession. Although stock markets have recovered some ground off recent lows and some economists are finding cause for optimism, economic institutions are virtually united in their agreement that the recovery will be weak, slow and uneven. Global unemployment is rising fast and promises to persist long after economic recovery finally starts.
The financial crisis has also cut directly across many operators’ investment plans to upgrade existing networks and roll out various Next-Generation Networks (NGNs). Operators now face more expensive and more limited financing, but they also face great uncertainty over the regulatory future and revenue streams associated with NGNs. The massive investments required, changing business models and only uncertain future revenues and returns have led to calls for governments to get involved in the financing and roll-out of NGNs. As public and private service delivery increasingly shifts online, access to broadband is increasingly becoming a public policy problem, if balanced development is to be achieved.
What role can investments in ICTs play in economic recovery? And should investments in broadband networks form an essential part of any stimulus plan? A new ITU report – ‘Confronting the Crisis – ICT Stimulus Plans for Economic Growth’ 1 – explores the impact of the crisis on the ICT industry and the role for public financing. It examines the contribution that the ICT sector and economic stimulus plans can make towards regenerating economic growth. Key findings include:
After more than two decades of growing private sector participation, there is once again growing recognition for the role of government in the financing and roll-out of national broadband infrastructure, due to the massive investments needed and risks associated with changing business models. Investments in ICT can play a strong role in generating long-term economic growth within any stimulus plan, as they offer strong multiplier effects in returns on investment, strong externalities and reduced economic leakages. Investments in ICT represent a long-term investment in national infrastructure and skills base. Nevertheless, public support for infrastructure raises risks of picking technologies, picking winners and even picking communities, in where these investments are channeled. Stimulus funding should therefore be temporary and targeted, to minimize crowding out. Mobile operators are better-placed than fixed operators to weather the economic storm – with greater flexibility in their cost structure and capex. Demand for basic ICT services will continue unabated – people still want to communicate and will pay to do so. However, telecom services will come under further price pressure, as operators compete for more cost-focused customers.
"Investments in broadband and ICT infrastructure have a fundamental role to play in economic recovery plans."
Dr Hamadoun Touré, ITU Secretary-General
Impact on different technologies
The impact of the financial crisis on ICTs is sharply differentiated according to the technology. Key headline statistics include:
The global market for mobile cellular connections continues to add around 140 million mobile cellular subscriptions every quarter, despite the global economic slowdown – by mid-2009, there were some 4.3 billion mobile subscriptions globally, with growth in emerging markets continuing apace. Mobile operators are increasingly being forced to compete on price. Worldwide, demand for broadband services remains relatively robust and in line with long-term trends, with some 430 million fixed broadband subscribers at the end of Q1 2009. Many operators are proceeding with Next-Generation Network (NGN) rollouts – but an increasing number of governments are expressing their support for national NGN infrastructure. Some governments are doing this by strong policy leadership, others are accelerating regulatory reforms, while still others are exploring innovative new financing models or credit lines to ensure that operators continue to have access to funding. Even before government stimulus plans have been disbursed, the growth of Fibre-To-The-Home (FTTH) continues unabated, with a growing number of operators and governments interested in this technology for delivering high-speed Internet access. Growing demand for telecommunications means that the satellite industry continues to grow organically at around 6% per year, with little observable impact of the financial crisis.
"By using a part of the EU’s financial package to help people to invest in their ground equipment, we could connect a million extra businesses or households in rural areas by the end of 2010."
Giuliano Berretta, Chairman, European Satellite Operators Association
Building the future
The ICT industry is a major driver of economic activity, directly accounting for up to 15% of Gross Domestic Product (GDP) in some industrialized countries, but also boosting economic productivity and efficiency across other sectors. In emerging markets, the ICT and telecommunication sectors represent a major source of formal revenues and tax receipts and can spur the development of national infrastructure. Demand for ICT equipment and services remains buoyant in some sectors, with many firms seeing outsourcing and teleconferencing as a means of cutting operational costs and discretionary spending.
The difficulties in finding funding now faced by some telcos have threatened to derail investment in NGNs, but some governments have been quick to step in, promoting ICT infrastructure in their stimulus plans to protect the roll-out of NGNs and leverage growth in ICT infrastructure in support of their long-term economic growth and development goals.
1 Published by ITU on 5 October 2009
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