Telecom sector yet to hit bottom: report

Canada’s beleaguered telecommunications sector may have to wait until 2003 for any big turnaround, according to a report from IDC Canada.

The report flies in the face of recent statements from industry stalwarts Nortel Networks and Cisco Systems, which both announced expectations of a rebounding telecom market in the second half of 2002. It predicts spending by Canadian service providers is expected to drop 40 per cent this year compared to 2001, said Toronto-based IDC Canada analyst Lawrence Surtees.

The report, Telecom’s Nuclear Winter: Canadian Capital Expenditure Outlook 2001-2002, polled financial personnel at 17 Canadian telecom companies and discovered that last year’s downturn in the IT and telecom sectors caused many larger established industry players to trim their capital expenditure (capex) budgets. This in turn affected equipment suppliers, such as Nortel Networks, Cisco Systems, and Lucent Technologies, IDC found.

“Not every segment of telecom is the same, so some are down more, and some might be a little rosier. But the bottom line is when you look at the total, it tells you…whether it’s realistic to think that the whole sector decline is over,” Surtees said.

Certain sectors within the telecom market, such as wireless, optical and IP may better weather the storm than others, Surtees said, adding the carrier customers will need to embrace new IT architecture in a big way, as current spending on traditional circuit switch equipment is stagnant.

Surtees said Canadian telecom capital expenditures did not yet hit bottom in 2001 and may be poised to deflate in 2002, which means that IT suppliers will face a tougher sell in their bid to grab carrier dollars.

A look at last year and 2002 capex budgets shows that Canadian capex peaked last year and the bottom of the spending valley may not likely be reached until 2003, Surtees noted.

IDC Canada in Toronto is at