A Bleak Future for Telecom

The future of the telecom industry is looking rather bleak these days. The news out this week alone is enough to paint a particularly stark picture:

  • Alcatel-Lucent (s ALU) is cutting jobs, which might not be enough. As one Wall Street analyst quipped, pruning isn’t enough when you need a hacksaw.
  • Nortel (s NT) is teetering on the verge of bankruptcy.
  • Ciena (S CIEN) recently informed investors of a slow 2009 because its customers, among them AT&T, are holding on to their cash

Of course, we’ve been talking about this for some time already (With AT&T Job Cuts, Telco Recession is Official;Trouble Returns to the Land of Telecom; Bad Times Ahead for Broadband). Essentially the credit crunch is preventing phone companies from borrowing money with which to spend on capital expenditures, such as upgrading their networks. Instead they have to focus on paying off debt.

Avian Securities in a recent research note pointed out that their sources were seeing delays of 6-9 months in spending on projects including “IPTV and next-generation build outs at AT&T (s T), Verizon (s VZ), and BT (s bt).” Of course, the credit crunch has also been a problem for equipment suppliers, which send their gear to big-spending telecom giants such as Vodafone (s vod) and France Telecom (s fte).

The problems are extending to handset makers, too, as we have seen in the slowing sales at companies like Nokia (s NOK). Handset manufacturers will suffer from lower demand in high-end devices and extended replacement cycles, even despite growth in emerging markets, according to research group Wireless Intelligence.