Telecom Shows Signs of Buckling Under Recessionary Pressures

AT&T and Verizon shares were hit hard Monday after being downgraded by Bernstein Research.

The firm downgraded Verizon from market perform to underperform and AT&T from outperform to market perform.

Verizon stock was down 7.16 percent to US$32.15 per share and AT&T stock was down 4.35 percent to $28.15 in late-day trading on Monday. Verizon and AT&T shares were down 27 percent and 32.6 percent, respectively, from their 52-week highs.

Recession Hits Telecoms

The year-long U.S. recession has started to take its toll on the telecomm sector, according to a Forrester Research report released Monday.

“It’s no surprise that people are planning to spend less on gadgets,” Charles Golvin, a wireless telecom analyst at Forrester, told the E-Commerce Times. However, the percentage of people who said they would give up their mobile or Internet service was very small — just a few percent.

“Most consumers now see those services as a mainstay and a necessity,” said Golvin. “However, there was a nontrivial portion of the population that said they were planning to spend less on those services. Basically, they’re looking to reduce their costs.”

Fewer Minutes, Less Texting

Two ways consumers will likely reduce their monthly wireless bills is by downgrading to cheaper plans that place more stringent limits on voice minutes and text messages, Forrester’s Golvin said.

“What I see is a lot of the people we would have expected to become more diverse users of wireless services — those people are going to come later,” he said. “The growth I expected to see a year ago will become retarded.”

More and more consumers are also cutting the cord — that is, canceling their landline telephone service — in favor of cheaper options.

“If [customers] see the wireless service quality at their home is good, they may cut the $40 per month on the landline or go with Vonage or the T-Mobile@home service, which is only $10 per month,” Golvin suggested.

High-Speed Internet Can Wait

In addition, some customers who were thinking of migrating to ultrafast broadband Internet services may put those decisions on hold through the end of 2009, Golvin said.

Verizon, Comcast and AT&T all introduced superfast broadband connection speeds in the latter half of 2008, and all three services come with hefty price tags.

At the same time, the three telecoms would be loath to lower their prices for those high-end services, Golvin said.

“Verizon and AT&T don’t want to be in the business of providing low-cost [broadband] service,” he said. “Their proposition is about greater quality and greater value and better experiences.”

Overall, the 2009 telecom market will be defined by “a declining rate of growth,” Golvin predicted.

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