Necessity forces adaptation
Any discussion of the 2009 outlook for the communications market must begin and end with the global economic crisis. The scarcity of credit, a bearish job market, greater budgetary constraints and depressed consumer confidence have the net effect of creating murky waters for all players to navigate.
As Yankee Group outlined in the October 2008 Focus Report, "Will the Anywhere Economy Slow Down‾," there are certain fundamental truths that we see on the immediate horizon. Telecom service providers are squeezing their capex budgets to align with lower revenue growth expectations. Enterprises must examine their IT spend with a fine-tooth comb to determine those projects that are both core to business transformation and cost-effective. Consumers will continue down the path of demanding ubiquitous access to preferred content and services, but they will be more cognizant of the financial barriers to entry and are re-evaluating luxury versus necessity purchases.
These trends seem to suggest stagnation in the communications market as service providers, vendors, enterprises and end users play wait-and-see with the economy. Yet in reality, nothing could be further from the truth. Yankee Group sees 2009 as a year of significant change and evolution. Forced into difficult decisions by tightening budgets from all sides, we expect that all of these players will alter their spending and consumption habits in critical ways. And while spurred by the current climate, these alterations will ultimately outlive the economic woes. Thus we will look back on 2009 as a watershed year in the evolution toward Anywhere.
In an effort to shed light on this evolution, below are 10 of the most significant developments we see on the horizon in 2009, with our take on 2009 winners and losers (see Exhibit 1).
Consumers will demand better value
Premium brands will lose market share. Consumers will never quit the mobile habit. Moreover, while some new services will see a slowdown in adoption, dependency on broadband where already established will not decrease.
Therefore, Yankee Group expects that communications service usage will hold up well during the economic downturn. That said, users will demand better value from their services, which will drive short-term experimentation and change long-term brand loyalty. Specific behavioral changes such as switching from premium to low-price brands, buying bundles to reduce total household bills and postponing non-essential equipment upgrades will take hold. This is good news for operators with alternative models that embrace third-party subsidization or advertising. It's also a positive for MVNOs that are positioned as best-value providers.
However, it is bad news for premium brands in the services and devices space, as well as incumbent telecom players that lack attractive triple- or quad-play bundled offerings. These providers will struggle to attract price-conscious consumers.
Recommendation: Premium service and device brands must reposition or launch sub-brands that appeal to price-sensitive consumers.
Cord-cutters will emerge from the economic mist. The challenging economic climate worldwide will separate the essential from the habitual. In line with this, fixed-to-mobile substitution will accelerate, driven by a value imperative and a change in consumer habits. That said, increased usage will not necessarily translate into an increase in mobile ARPU as prices continue to fall, consumers reduce spend on value-added purchases such as ringtones, and prepaid users cut back.