Mobile industry in a state of denial about the economy

I'm increasingly of the opinion that many in the mobile industry are being insufficiently pessimistic about 2009.

I keep hear people saying "Oh, nobody will ditch their mobile account". Well, yes, in the same way they won't ditch food, either. But I wouldn't want to be selling foie gras, or running an expensive but undifferentiated restaurant at the moment.

In particular, I'm curious to see if the sudden burst of growth and enthusiasm around smartphones will be the unstoppable bandwagon that some observers believe. Generally in a recession, people like "cheap luxuries" (pizza delivery does well, for example). I'm not sure that top-end phones and ongoing data plans fit into that category.

I also think that there will be a big focus on the cost side for operators in 2009. Handset subsidy and increasing customer support and returns costs will be a major focus. Some operators will also try to position themselves as saving costs for their customers - we already see offers suggesting people can "save money after Xmas", by deferring handset upgrades for a few months in favour of receiving a large cut in their bills instead.

At a retail level, there will be more shopping-around. Customers will start to question whether they really need 600 minutes, or free video-calling credit they don't use. There has already been a notable shift to rolling monthly contracts, and a broad range of SIM-only propositions for use with unlocked phones. I've seen that 3 UK now has a 6-month contract - perfect for economy-worriers.

The other thing I've been discussing with people concerns investment and capex. This year will see a range of spectrum awards - 2.6GHz in various other countries, 3G licences in India and so on.

I'm particularly interested to see whether bidding for UK 2.6GHz spectrum is much more muted than it would have been in the past - or whether impending capacity problems for mobile broadband will make the operators grit their teeth and do it anyway. I spent a lot of time looking at this are for a governmental body last year, but before the full grip of the recession hit. What's now clear is that any potential bidder relying on debt to fund spectrum purchase or network build-out will be having second thoughts. I'm not expecting too many adventurous expeditions from North American or Asian companies fancying their chances in a highly-crowded market, either. On the other hand there are 5 operators - and 2500-2690MHz isn't enough for all of them to get 2 x 20 MHz for future LTE deployments.

My friends over Telco 2.0 have been musing about whether we'll see a push to make spectrum purchases more linked in to commercial success, perhaps by revenue-share arrangements. I think that's an interesting notion, but would probably take years of consultation and hand-wringing by all concerned.

My bet is that the UK auction will be moderately successful (if it goes ahead, given the interminable legal wranglings about spectrum & reallocation of 900MHz GSM frequencies which are currently blocking its progress). I'll have a punt that total receipts will be in the £1.5-2bn range - reasonably substantial, but nowhere near some projections I heard last year.

Overall, I think that the industry is going to have a couple of wake-up calls in Q1-Q2, as financial results start to unveil the grim realities. I don't think that some company's share prices have enough pessimism built-in yet - too many analysts and investors see the sector as counter-cyclical. I'm not seeing many signs that the much-vaunted fiscal stimulus moves by various governments will be of direct benefit yet - if anything, I reckon the fixed side of telecoms stands to gain more, by pushing state-funded fibre build-outs.

As I've said before, I'm not taking a glass half-empty view because I really want to. It doesn't do my own business any good if nobody is buying research reports or consulting services or speaking engagements. But at the same time, I think I need to be realistic - and I still meet quite a few others who seem to be enjoying the warm glow of their rose-tinted spectacles.

And lastly, getting back to the question of whether mobile use really is sacrosanct in a recession, a tip-o-the-hat to Patrick for highlighting a story about someone who actually has binned his phone outright...