Global Financial Crisis Spells Bad Times for ICT's Demand.

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.