The Effect of War on Telecom
The consensus appears to be this: The threat of a U.S. military conflict in Iraq certainly doesn't appear to be helping the situation.
The main threat to telecom is that investors are hesitating to make financial commitments because they don't know what the future holds. "Black-and-white situations investors can deal with. When things are grey, there's indecision," says Frank Dzubeck of Communications Network Architects (no Website). He says one banker told him he didn't care which way the situation went, so long as someone did something. A rather cynical view, surely, but one that may reflect frustrations in the financial community.
One researcher thinks the uncertainty and fear generated by war could significantly set back the slow progress of recovery in the telecom market. "Worldwide economic recovery would stall, already-reduced expectations would be dealt another jolt by war," says Lawrence Surtees, director of telecom and Internet research at IDC Canada. His firm has been modeling world disasters such as war threats into their forecasts since the September 11 attacks on the U.S. The worst-case scenarios are chilling, he says, particularly for equipment vendors.
"Investors ask, 'Do we want to make investments now, without knowing the outcome?' " says Steve Kamman of CIBC World Markets. But he urges against confusing the ennui of the telecom downturn with the war threat: "It could be a convenient excuse not to focus on what's going on in telecom, which has its own issues and problems... Take away the war situation and things wouldn't be much different."
One European analyst thinks the telecom market won't be as affected by a military action as other sectors. "We think of telecoms as utility-like services," says Bradley Bugg, analyst with Dresdner Kleinwort Wasserstein. While overall economic conditions have an impact, he says it's not as great as the impact on more cyclical segments, such as parts of the retail industry.
Still, analysts can't ignore the possible negative effects a war could bring. "The impact on the telecom market will not be telecom-sector specific," writes Jim Lawrence, program director at Stratecast Partners, in an email today. While stressing that his views are personal and don't reflect those of his employer, Lawrence doesn't pull his punches: "Everyone will be hurt by World War III and the coming global depression."
Some analysts question whether war would affect the ability of vendors to gain international telecom contracts. Would nations where governments influence telecom procurement use their influence against the U.S. or its allies? Would some European telecom equipment vendors, such as Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and Siemens AG (NYSE: SI; Frankfurt: SIE), see North American contracts affected if their headquarters countries opposed U.S. action?
"Nothing in our research has ever indicated that purchasing decisions are based on nationalism," says Richard Webb, analyst of European networks and wireless LANs at Infonetics Research Inc.
Neither Alcatel nor Siemens will comment on the international situation; spokespeople from both say to do so would be dabbling in speculation.
War could also hinder upcoming tradeshows and conferences, however, where multinational attendees may face transportation hindrances and others simply opt to stay home.
Elizabeth Rogan, executive director of the Optical Society of America, says nothing short of a direct disruption at the conference site itself will stop the upcoming OFC Conference from happening.
"We believe the way to dispel the ignorance and fear of terrorism is not to respond to it," she says. Also, the OSA plays a big role in fighting terrorism, she says, by helping develop applications that can serve to protect against it and "dispel the fear terrorism tries to evoke."
Can anything positive emerge from the Iraq situation for the telecom sector?
Most analysts interviewed for this article don't see any positives emerging if war happens. In fact, even an increase in U.S. government contracts (see Dreams of the DISA Deal) are a response to terrorist threats, not to the prospect of war.
What do you think? Unstrung's sister site Light Reading is currently running a Research Poll on War With Iraq. Weigh in with your views.
— Mary Jander, Senior Editor, Light Reading
For up-to-date information about the coming OFC Conference, please visit Light Reading’s Unauthorized OFC Preview Site.