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How Will the Economic Crisis Affect Mobile Radio? (10/13/08)
By Sandra Wendelken
Although the current economic downturn will impact the mobile radio communications industry, firms with sound business plans can weather the crisis. However, mission-critical communications managers should prepare now for tighter budgets and government revenue shortfalls, industry experts said.
“Many of our customers are looking to cut their budgets to deal with the crisis,” said Joe Ross, partner with Televate, a public-safety communications consulting firm. “For projects already in progress, we don't suspect any significant changes; however, we suspect that new projects will be cut or delayed. A number of our projects are funded by federal grants, and to enhance voice and data interoperability in the current capital crisis, the federal government may need to expand the overall grant program.”
Steve Proctor, executive director of the Utah Communications Agency Network (UCAN), said his agency and others will be watching expenses. “Tight budgetary times affect all of us adversely. At UCAN, we are currently watching expenses and new projects, making sure that adequate funding will be available to complete the tasks,” said Proctor.
“I think all agencies of government will be watching expenses and consequently cutting expenses where they can. This could surely affect use of communications systems, especially those with an attached user fee.”
The mobile radio market may fare better than other sectors because of user reliance, according to several experts. “Luckily, public-safety radio service is a high-priority service and relied on heavily,” said UCAN’s Proctor. “While the service remains constant, new programs, radio purchases and service upgrades are often victims of tight budget times. Our board has seen fit to make sure that we have adequate funding set aside in a reserve fund to cover any unanticipated shortfalls in budget.”
Uncertainty about the extent of the current downturn could also be a factor, said Mark Crosby, president and chief executive officer (CEO) of the Enterprise Wireless Alliance (EWA). “Historically, investments in communications solutions grew in stressful economic periods, and that may still occur, but I am not sure of the depth and scope of this crisis, which may obsolete traditional expectations,” Crosby said.
The companies that manufacture equipment won’t be immune to the downturn, but people still need radios, said Coleman Bazelon, principal at the Brattle Group, an economic consulting firm. “If they have huge market share, they should be in a good position to ride this out,” he said.
Bazelon said that small companies with sound business plans should fare well too, although access to credit will be difficult. “The crisis shouldn’t be picking on this sector,” he said.
One mobile communications dealer in North Carolina, Amerizon Wireless, is experiencing business as usual so far. “Our customers rely more heavily on their communications and wireless devices when the economy is in a downturn,” said Doug Wilson, Amerizon operations manager. “Our customers are making sure their systems are in good operation. They are adding new features to systems to enable them to manage by exception more and more. They are not skimping on communications, because ultimately, the better your systems are, the safer, more resourceful and productive your people become.”
Although it likely won’t be a time for growth, most dealers have the potential to hold their own, Crosby said. “Access to capital is critical for all business enterprises, and as access to credit becomes problematic, business growth is reduced and investments in wireless solutions may be put on hold,” he said. “That said, there may be opportunities to provide wireless business solutions that promote employee productivity, energy savings through better fleet management, reduced costs for push-to-talk (PTT) voice communication requirements and other capabilities that are especially important to small and medium businesses during difficult economic periods.”
The 700 MHz D block spectrum might be the largest victim of the economic downturn. The credit crisis could potentially dry up various funding sources that potential bidders would require to design and deploy a new network. “Depending on the service providers that participate in the broadband auction, this may be a moderate to significant challenge,” said Televate’s Ross. “Large operators with significant cash on their balance sheets will have more flexibility to bid and to build. Companies with limited access to cash will likely struggle to secure funding.”
Ross said the financial crunch means fewer startups will participate in the auction because of the immediate cash requirements to qualify for the auction and the long-term financing needed for network buildouts. “However, it is reasonable to assume that regional telcos could most certainly put together the funding for both the bid and the build. Ultimately, we suspect that the bidding community will ask for more time to build out as a result of this crisis,” Ross said.
FCC Commissioner Michael Copps said correctly estimating the costs for a public/private nationwide broadband network is critical in the current environment. “Finding money in the hallowed canyons of Wall Street or anywhere else to get this network built makes “Indiana Jones” searchings look like child’s play. Lack of certainty on top of lack of funding will not a public-safety network make,” Copps said in a statement released with the latest FCC 700 MHz D block proposal.
The long-term effects still remain to be seen. “Public-safety voice and data systems will not immediately be affected, but the jury is still out for the effects of this on the longer term,” said Amerizon’s Wilson. “Much will depend on the new administration’s ability to continue funding grants for first responders and the ability for public safety to use wireless data devices in nontraditional ways.”
Proctor said the full impact will trickle down to the mobile radio market over time. “I suspect that we have not seen the last of this problem; in fact, I think we are only at the beginning of the issue,” Proctor said. “I believe as a country we are headed into tight economic times with an uncertain future ahead.”
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