February 2009 Archives

Although no one is throwing away their mobile phones just yet, or for that matter, not even making fewer phone calls or surfing the Internet on their broadband connection less frequently, the global financial crisis may still hit the demand for ICT. That's the latest findings of a study by the ITU that feels that the current economic climate is affecting consumer incomes worldwide. And with many jobs under threat, consumers in general are turning increasingly cautious. So the end user demand for ICT will eventually suffer even if historically the demand for basic ICT services has been income-inelastic.

In the report called Confronting the Crisis: Assessing Its Impact on the ICT Industry, ITU said that demand for ICT may still continue to grow worldwide -- and particularly in the developing countries -- despite falling incomes, as telecom networks are in early stages and business use is high. However since consumers' disposable incomes were hit recently by rises in food prices in developing countries (where income elasticity for ICT, especially mobiles, is relatively high) and with falling incomes in the developed world, consumers may choose to give up or defer their broadband connection upgrades. As a result, usage of ICT may fall with a reduction in real income.

"There is no doubt that technology is a volatile sector where broadband connectivity and mobile telephony growth has remained robust despite the dotcom bubble. But to what extent the historical paradigm of technology as a growth sector will remain true in severe downturn is not known yet," said Phillippa Biggs, the author of the report.

The skepticism about the robustness of the future demand for ICT rises from the fact that during previous downturns, mobile and broadband were niche services, rather than the mass markets they have become today. So demand trends in response to the crisis may not be well understood.

Indeed, there is evidence that the rate of growth in some areas of ICT is already being  adversely impacted. For instance, analysis firm Point Topic says that as broadband in developed markets -- that grew largely by converting dial-up users to high-speed services in the past -- approaches saturation due to rapidly decreasing 'no-net' homes and businesses, its growth is already slowing.

"Developing countries such as China and India have also gone through their initial rapid growth phase and are now growing steadily, rather than exponentially," Point Topic said.

Similarly, in contrast to mobile phones, global sales of fixed and mobile WiMAX equipment have started falling as well from the third quarter of 2008 and may decline throughout 2009 due to the recession. "Even a few niche areas, such as the top-end PC markets and high-end handset markets are seeing some softening of demand," says Biggs.

Consider the plight of the companies in the ICT sector as well. Alcatel Lucent for example, declared an unexpected 7.5 percent Q4 decline in yearly revenues, which at EUR 16.98 billion for the full year 2008 was also down 1.1% at constant currency year-on-year.

However, the biggest jolt came from the largest PC maker Intel. After record Q3 results ($ 10.2 billion in revenues, up 8% sequentially), Intel announced Q4 revenues of $8.2 billion, down 23% year-on-year. Not just that, in the "uncertain environment" Intel CEO and President Paul Otellini also announced $3 billion worth of cost cutting measures.

The bad news does not stop there. Other ICT sectors that are also facing shortfalls include the semiconductor industry, enterprise software, security, telecom infrastructure, as well as technology, media and telecommunication (TMT).

According to ITU, these are challenging times for the ICT sector. The old cliché that the tech sector was a long term growth industry, riding on a wave of convergence and digitization, that can beat global GDP growth even during difficult economic times, seems even less true today than the 1987 market shock and 2001-2003 dotcom burst.

Nevertheless, even "as the crisis may challenge many," says Hamadoun Touré firms, ITU Secretary-General "it can also overturn the established order and stimulate the emergence of new entrants with new technologies."

The report adds that in some ways, the crisis will reassert the old order. Those ICT companies with sustainable business models, stable cash-flows and deep pockets could regain some of the ground they have lost to new market entrants.

Financial weakness in the sector creates opportunities for cash rich players to acquire competitors and to purchase distressed assets at depressed prices. Economic crises also create openings for disruptive technologies and, here, small start-ups can prove the most agile in exploiting new opportunities, the report said.

Although no one is throwing away their mobile phones just yet, or for that matter, even making fewer phone calls or surfing the Internet on their broadband connection less frequently, the global financial crisis may well hit the demand for ICT after all. That's the finding of the latest study of the ITU, that feels that the current economic climate is affecting consumer incomes worldwide, and with many jobs under threat, consumers in general turn increasingly cautious, the end user the end user demand for ICT will eventually suffer even if historically the demand for basic ICT services has been income-inelastic.

In the report called "Confronting the Crisis: Assessing its impact on the ICT industry," ITU said that demand for ICT may still continue to grow worldwide- and particularly in the developing countries- despite falling incomes, as telecom networks are in early stages and business use is high. However since consumers' disposable incomes were hit recently by rises in food prices in developing countries, where income elasticity for ICT, especially mobiles- is relatively high, and that fall in income in developed  would lead consumers to give up or defer their broadband connection upgrades, usage of ICT may fall with a reduction in real income.

"There is no doubt that technology is volatile sector where broadband connectivity and mobile telephony growth has remained robust despite the dotcom bubble. But to what extent the historical paradigm of technology as a growth sector will remain true in severe downturn is not known yet," said Phillippa Biggs, the author of the report.

The skepticism about the robustness of the future demand for ICT rises from the fact that during previous downturns, mobile and broadband were niche services, rather than the mass markets they have become today. So trends in demand in response to the crisis may not be well understood.

Indeed, there is evidence that the rate of growth in some areas of ICT is already getting adversely impacted. For instance, analysis firm Point Topic has points that as broadband in developed markets-that grew
largely by converting dial-up users to high-speed services- approaches saturation due to rapidly decreasing 'no-net' homes and businesses, its growth is already slowing.

"Developing countries such as China and India have also gone through their initial rapid growth phase and are now growing steadily, rather than exponentially," Point Topic said.

Similarly, in contrast to mobile phones, global sales of fixed and mobile WiMAX equipment have started falling too from the third quarter of 2008 and may reduce throughout 2009 due to the recession. "Even a few niche areas, like the top-end PC markets, high-end handset markets too are seeing some softening of demand," says Biggs.

Consider the plight of the companies in the ICT sector as well. Alcatel Lucent for example declared two weeks back an unexpected 7.5 percent Q4 revenues declined as its yearly revenues for 2008 amounted to EUR 16.98 billion, down 1.1% at constant currency.

However, the biggest jolt came from the largest PC maker Intel, which after reporting record record Q3 2008 results (of US$ 10.2 billion in revenues, up 8% sequentially), announced Q4 revenues of US$ 8.2 billion, that was down by year-on-year. Not just that in the "uncertain environment" Intel CEO and President Paul Otellini also announced $3 billion worth of cost cutting measures.

The bad news does not stop there. ICT sectors that are also facing shortfalls are the semiconductor industry, enterprise software, security, telecom infrastructure, as well technology, media and telecommunication (TMT).

According to ITU, these are challenging times for the ICT sector. The old cliché that the tech sector was a long term growth industry, which riding on a wave of convergence and digitization can beat global GDP growth even during difficult economic times, seems less true today than the 1987 market shock and 2001-2003 dotcom burst.

Nevertheless, even "as the crisis may challenge many," says Hamadoun Touré firms, ITU Secretary-General "it can also overturn the established order and stimulate the emergence of new entrants with new technologies."

The report also adds that in some ways, the crisis will reassert the old order, in which those ICT companies with sustainable business models, stable cash-flows and deep pockets could regain some of the ground they have lost to new market entrants.

Financial weakness in the sector creates opportunities for cash rich players to acquire competitors and to purchase distressed assets at depressed prices. Economic crises also create openings for disruptive technologies and, here, small start-ups can prove the most agile in exploiting new opportunities, the report said.

It was touted as the first next generation BWA technology that could change the face of mobile broadband access, particularly for the developing world, which is also a few years ahead of long-term evolution (LTE). And going by the growth it achieved over the past 12 months or so, it was expected to set another revenue record for quarter ended December 2208.

However, in just about a year following the point where it really took off globally, it seems that, contrary to the fortunes of its rival technology 3G, WiMAX mobile broadband rollout is already hitting speed bumps created by the global economic recession.
 
Over the past month at least three well known research outfits have warned that WiMAX rollouts had been hit by the recession and are already slowing down -- and slowing down pretty fast.

According to just-released study by Canada-based wireless technologies analyst firm Maravedis for instance, although BWA/WiMAX subscribers worldwide reached 2.68 million in Q3 2008 (a huge 91% increase over Q3 2007), when compared to the first quarter of 2008, the Q3 growth looks rather modest at 13%.

There's more: Although refraining from quoting numbers, last month the California based telecom market research firm Dell'Oro Group said that despite the strong growth of 2008 promising a bright 2009, the WiMax market has been "hit rather hard by the economic downturn, which is not good news for WiMax - a technology that's been also facing fierce competition from 4G technology -- a LTE."

Still earlier in December, yet another analyst outfit Infonetics Research, noted that worldwide sales of fixed and mobile WiMAX equipment and phones/Ultra Mobile PCs dropped 21% to $245 million in 3Q08 from 2Q08. And these are expected to continue slide down through 2009 as the economic recession puts the squeeze on this early market.

So what really is ailing this new technology all of a sudden, given that its arch rival 3G does not seem to be hit by the recession at all? "The problem is," says Adlane Fellah, founder of Maravedis, "unlike the 3G operators, very few WiMAX operators have deep pockets. WiMAX networks in general are in their infancy stage and thus require extensive capital expenditure which has to be financed somehow. But the credit crunch and economic downturn is impacting the ability of most service providers to garner funding for expansion and rollouts."

And those who do have deep pockets are playing it safe too. "For instance we have seen that a number of operators in Ukraine, Russia, Brazil, and even in India, which is the fastest growing and one of the biggest markets in the world still making good profits, are slowing down their deployments conserving their resources. All are waiting for the markets to open up again," says Fellah.

Admittedly, for a long-awaited technology that has been making a lot of noise for the past four years or more but only really managed to take off about a year back, the global recession is indeed bad news for WiMAX.

After all, if not for anything else, as says Scott Siegler, analyst at Dell'Oro, "With initial LTE rollouts coming in the 2010 to 2011 timeframe, these delays will shorten the time to market advantage WiMAX currently has over LTE."

Yet in a way, there may be a flip side. The down-turn could also create attractive investment opportunities for astute investors in the WiMAX communications sector.

"The leading trend going into 2009 is an accelerating shift in consumer spending toward wireless services and replacement of landline services," says Fellah. "The value of mobile data services will accelerate as consumers rationalize their communications services expenses. Smaller carriers will have room to differentiate themselves with innovative products and services, and operators will revise deployment strategies to remain profitable and increase efficiency with fewer resources. Finally, lower monthly subscription fees could accelerate the adoption of Personal Wireless Broadband like mobile WiMAX."

Nevertheless, according to Infonetics, even if WiMAX deployments are being hit right now, tough times are not expected to last for more than a year or so. "Revenue growth is expected to return to the overall WiMAX market-fixed as well as mobile- in 2010 as a growing number of WiMAX networks with fixed CPE-based broadband start rolling out 802.16e-based networks," says Richard Webb, wireless analyst at Infonetics Research. 

Photo WiMax on the Go by Brian Jepson. Attribution-Noncommercial-Share Alike 2.0 Generic

It is a quintessential takeover battle that RIM -- the company that produces the BlackBerry -- has been fighting for the past two months. But it seems that if the price is right, the world's most popular push-email service for hand-helds may be able to bag Certicom Corp, the Mississauga, Ontario-based mobile e-business security provider after all.

The erstwhile reluctant management of Certicom Corp, announced today that its Board finally feels RIM's latest offer -- announced on February 3 -- to acquire Certicom for Canadian $3.00 per share is a "superior proposal" and if the price is right, the present Certicom management may allow the company to be taken over by RIM.

"Certicom's Board of Directors and the Special Committee of independent directors are working to ensure the process is fair and that it delivers maximum value for our shareholders," said a company spokesperson in response to my queries adding that although "the first offer from RIM was hostile only in the technical sense in that it was an unsolicited offer.  Certicom's Special Committee of Independent directors is currently reviewing a friendly RIM offer."

The source added that its "Board of Directors and Special Committee of independent directors are working with financial advisors TD Securities for conducting a process to maximize value for shareholders and ensure a positive outcome for the company."

Indeed for RIM these words may be music because the encryption technology solution provider based on Elliptic Curve Cryptography (ECC), Certicom is a coveted company that is also being wood by VeriSign Inc.

The ECC technology, developed by Certicom, is what Certicom calls a next generation public key encryption technique that can be used to create faster, smaller, and more efficient cryptographic keys. ECC generates keys through the properties of the elliptic curve equation instead of the traditional method of generation as the product of very large prime numbers. The technology can be used in conjunction with most public key encryption methods, such as RSA, and Diffie-Hellman.

Some say ECC can yield a level of security with a 164-bit key that other systems require a 1,024-bit key to achieve. Because ECC helps to establish equivalent security with lower computing power and battery resource usage, it is becoming widely used for mobile applications.

"This technology is highly valued and used by companies across all industries, including IBM, Qualcomm, Texas Instruments, Motorola, Samsung, RIM Continental Airlines, and the National Security Agency," says the Certicom official.

Small wonder then, that for both BlackBerry and Verisign, Certicom would be a prized possession. While providing intrusion-proof push email service is a guarantee that BlackBerry thrives on, for VeriSign that enables and protects billions of interactions every day across the world's voice, video and data networks, Certicom's technology is equally coveted.

Right after RIM made its first of C$1.50 per share-amounting to C$66 million offer -- that Certicom turned down as "hostile" -- VeriSign started chasing Certicom by making a counter offer of C$2.10 per share.       

However, for RIM, Certicom may be a must-have. Not only has "Certicom provided the encryption technology to RIM since 1998 and has had a long and mutually beneficial relationship," as says the Certicom official. But  RIM's security policy does not allow any third party or even the company to read the information transferred over its network. In that sense it is imperative for RIM perhaps to have absolute control of the encryption technology  ehind the BlackBerry.

Still, even as the balance tilts in RIM's favor -- at least as of now -- Certicom is not going to be an easy catch. Certicom wants to ensure that it gets the best deal in the current tug-of-war.

"If Certicom determines that the RIM Offer is a superior proposal as defined in the VeriSign agreement, VeriSign will have the right, but not the obligation, to offer amended terms within a period of five business days," said a company statement.

Certicom also adds that "If the Board determines that the RIM offer does not continue to be a Superior Proposal, the Board will promptly reaffirm its recommendation of the VeriSign Arrangement and enter into an amended arrangement agreement with VeriSign."

And if VeriSign does not offer to amend the terms of the VeriSign Arrangement, Certicom has retained the right to enter into the arrangement agreement with RIM, subject to certain conditions including the payment of a C$4 million termination fee to VeriSign.

Don't you wish you owned some Certicom shares?