Telecom planning in a time of turmoil
- 10 October, 2008 14:11
It's gotten pretty hard to miss the financial news lately: September was the worst month for stocks in years, and October looks to surpass it. Despite the US government's massive US$800-billion bailout, the US economy is still roiling, and Europe's is doing even worse.
With all this gloom and doom abounding, if you're a telecom manager you may be wondering about how all this will affect you -- and what decisions you can make to ensure your company's safe over the long haul. Here is an FAQ:
Will I still have a job tomorrow/next week/next month/next year?
Probably. If you're in your late 20s or older, you probably recall the dot-com debacle. For the economy at large, this crisis is worse, but for those of us in the tech/IT sector, it's not as bad. First, CIOs have been cautious in increasing the size of their tech staffs over the past few years -- so there are fewer "redundant" positions. Second, not as many tech-heavy companies have been hit. Yes, if your former employer was Lehman, Bear Stearns or a mortgage broker, you're probably out looking for a job. And if you're working in finance, real estate or insurance, you should build out a Plan B. But for everyone else, the chances are your company (and very likely your job) will survive the downturn.
How does this affect my telecom providers?
Keep in mind the credit-worthiness of the providers you're doing business with. Financial analysts Sanford Bernstein recently looked at AT&T and Verizon and concluded they're probably OK. Of the three US players, Sprint is at greatest risk. When it comes to smaller players, things are iffier -- but that doesn't mean you should categorically back off from using these companies, which can offer services that enable you to gain competitive advantage. Just make sure you bring someone from your finance department to review the new provider to determine the level of risk. Look for the level of debt, and eschew providers with high debt loads. (Sanford Bernstein finds the cable companies potentially interesting, if the debt loads are correct).
How does this affect the types of contracts I should sign?
Go for managed services wherever possible. Here's why: During a credit crunch, the less you spend on capital equipment (routers, firewalls) the better. Managed services are, in essence, a way for the carriers to assume the capital costs of your gear. Since the chances are that Verizon and AT&T are bigger than your company, they have greater access to capital (and more favorable terms). So your best bet is to have the carriers assume the capital costs for the gear, so your company can conserve its resources. Finally, make sure you give yourself plenty of "outs" -- opportunities to exit the contract without termination penalties.
The bottom line? No need to panic, but it's wise to keep the financial situation in mind when negotiating contracts.