There is no question the economic downturn has had a significant impact on spending in both business and consumer markets. In the business market, the results have been well documented, with a marked decrease in spending, including staff cuts as well as an increased need to justify any new investments. For the communications market, this has created an opportunity to feature the cost saving features of IP-based technologies, in addition to their productivity enhancing capabilities.
Because its service provider customers are critically impacted by the needs and trends of consumers, Alcatel-Lucent sought to determine how the recession has impacted consumer spending, knowing that overall confidence has been at an all-time low for many of them and that spending patterns can change drastically with the economy.
The good news, based on Alcatel-Lucent's research, is that, while two-thirds of consumers are cutting their overall spending, their first cutbacks are not related to their network services. In fact, only one of the top 11 cutbacks is communications related - downloading online pay per view movies is the fifth most frequently cited cutback. The remainder of the top 11 includes other ancillary entertainment and activities, like going to bars (1), concerts (2), sporting events (4), movies (6), and restaurants (7). Renting movies from physical shops came in third. Travel, charitable contributions, health club memberships, and non-essential shopping rounded out the top 11.
The lower half of the response table included many network and communications services, but their frequency was significantly lower than the top cost cutting measures. In fact, the three of the four least likely services to be cut include the basic communications services: broadband, landline phone, and cellular service (education also fell among these three at the bottom of the list).
What it means is there is an ongoing opportunity for network operators, whose services are viewed as a much more fundamental part of everyday life than other leisure activities. Indeed, broadband service can be considered recession-proof.
Interestingly, paid VoIP has a much higher likelihood of being cut, despite the overwhelming sentiment that broadband Internet is a must-have service. Clearly, providers have a significant opportunity here in developing the PSTN replacement market. But, this is also a reflection of comfort - consumers are used to their reliable traditional phone service and, in a challenging economy, tend to favor tried and tested products to new technologies.
On the other hand, free and low-cost services still present an opportunity - though they also present a challenge in subsidizing those services with other revenue streams, including advertising. Even with an improvement in economic conditions, Alcatel-Lucent says 13 percent of respondents still plan on making cuts, while 20 percent are likely to increase spending, leaving the majority at a level spend.
What does this mean for providers? Certainly, they will have to adapt their business strategies to account for consumer behavior. More than likely, they will see an increase in the use of free services, like IP-based voice and video services, an increase in messaging (email and IM) as opposed to traditional telephony, a rising interest in bundled services, and a greater acceptance of advertisement-driven services.
The latter presents a real opportunity for operators as they look to offset a reduction in the use of fee-based services. The creation of more bundled offerings also is an opportunity, because it creates stickiness and helps reduce churn, which is at least as important as singing new subscribers - and builds a relationship operators can leverage as the introduce new services. And of course, their ability to enhance the overall experience for the end user will only help increase subscriber loyalty.
For more on Alcatel-Lucent's research, read the full report, including tables and charts that show exactly how the consumer market is expected to behave as a result of the recession.
