Financial Crisis: A Blessing in Disguise for ICT?

Read between the lines however of the voluminous yet enlightening sequel report of the impact of the financial crisis on the global ICT sector that the UN agency, International Telecom Union (ITU), released a few days back, and you will find that the crisis had one upside at least. And that is that governments in many countries have stepped up investments to fund ICT networks, somthing that certainly promises longer term benefits to the sector.

Called Confronting the Crisis, ICT Stimulus Plans for Economic Growth, this report follows a February report, which noted that despite the crisis, ICT had contributed consistently as a high-growth sector and was poised to power economic recovery across all sectors. That report also noted that to ensure long term competitiveness, the ICT industry had to continue investing in infrastructure and roll-outs of cost-effective services, such as next-generation networks.

Yet in its latest study, the ITU found that private investments in ICT infrastructure have certainly taken beating since then. While certain sections of the ICT, like mobile telephony and satellite, continued to flourish, the financial crisis and credit crunch had nevertheless cut directly across many operators' investment plans particularly in upgrade plans of the existing networks and the rolling out various Next-Generation Networks (NGNs). 

Forced by the massive investments required against the background of uncertain cash flows and revenues, the operators began calling for governments to get more involved in the financing and roll-outs. And thankfully, many governments responded by accepting that ICT had become more of a public policy problem, rather than earlier views that it should be left solely the responsibility of the private sector. 

"The financial crisis has pushed governments in some countries, at least, to come back and start financing the telecom sector," said Phillippa Biggs, the author of the report and an ITU economist. "But in any case it certainly led to more widespread recognition that governments and corporations have to work together to ensure the long term interest of the ICT industry."

According to the report, lack of readily available financing, higher financing costs and lower risk thresholds for many operators are making corporate financing increasingly difficult. In the face of these challenges, governments in some countries are now providing advantageous financing terms to fund the roll-out of fiber and NGN deployments. They are also experimenting with innovative new financing models to fund network deployments in new technologies.

For many governments, this involvement is not a stand-alone decision or a result of the debate whether the government should invest in ICT or not, adds Biggs. "These decisions were actually taken in context of what the private sector was doing already, as well as because rolling out next generation networks (primarily broadband) was of strategic importance to the competitive environment."

"In some countries, for instance, the incumbent had already been working on NGNs for several years prior to the crisis. Then came the crisis that cut across the investments plans by making it harder for corporate funding, which is when the government woke up and realized that there is an issue and additional support funding is needed and they come in and announce plans," says Biggs.

For instance in Australia the incumbent telecom company Telstra launched an AU$10 billion IP core network roll-out as far back as in 2005. But when that roll-out started faltering due to the crisis, the Australian government stepped in the end of 2008 to announce US$3 billion FTTH plan to take broadband to 90 percent of the Australians.

Similarly Irish telecom company Eircom's Eur60 million migration to NGN in 2006 started well before the crisis. Subsequent ICT sector uncertainties however forced the Irish government to move in this year to announce its Eur223 million universal broadband coverage plan. 

   

Still, notes ITU, despite the increasing participation of the government, there is not enough public sector money to solve the global crisis. This is why recovery strategies should be crafted in a manner that encourages private business and financing as well. "In fact government stimulus is almost always associated with how much money the government doles out," says Biggs. "Such emphasis on financing in stimulus packages however may overlook more simple and immediate measures that governments can take to promote private sector investments."

ITU therefore suggests that stimulus packages should also contain regulatory changes or a change of the whole policy environment so the private investments are not crowded out.

"Reforming tax structures, creating greater regulatory, clarity and resolving spectrum issues are some factors that can help promote an enabling framework and generate growth within the ICT sector and beyond," said the report.