Rough time for telcomm vendors but sees light ahead

There have been many reports over the past year about the recession and hence the effects on the telecomm companies.

The verdict was already out that the telecom equipment vendors are bracing for what is expected to be a fairly rough round of first-quarter earnings, with the global economic recession cutting into demand from both consumers and carriers alike, according to a report in the Wall Street Journal

The report also forecasted that some of the world's biggest European equipment vendors, found that while some would fare better than others, 2009 will generally be more difficult than 2008 for the companies.

Amid all these developments came the report yesterday when Nokia reported a worse-than-expected 90 per cent slump in first quarter profits.

This is Finnish mobile group's worst results since 2001 and rightly so, blamed on to the global economic downturn which has hit phone sales.

Mobile phone companies have been hit hard by a sharp drop in consumer spending. Nokia said it sold 93.2 million handsets during the first quarter, down 19 per cent from a year earlier and down 18 per cent from the fourth quarter.

Sony Ericsson, which has its headquarters in London, has also announced today that it’ll be slashing another 2,000 jobs around the world. The latest cost-cutting drive comes as the company posted a €293m (£258m) net loss for the first three months of the year.

However Nokia still maintained its market share which remained steady at 37 percent. The company also calmed jittery investors by reaffirming its prediction that the mobile market would shrink by 10 per cent this year, and the decline would level out in the second half of the year. It retained its operating margin forecast for its devices and services business.

Although the above news looks to be shocking but it didn’t stop the company’s shares to rise 9.5 per cent to €11.05 on the Helsinki stock exchange. The primary reason for the rise is that the investors were cheered by the company holding steady on its outlook after a grim quarter.
Similar to Nokia, Sony Ericsson too has vowed to return to profitability as quickly as possible thus calming the investors.

Like many other analysts especially in the financial world, telecom vendors like Nokia and Sony Ericsson too believe that there are nascent signs of relative stability going into the second quarter.

I still believe it’s a little bit too early to call a bottom on demand in the mobile devices business.

However most of the analysts expect that companies to return to profitability in the second half of 2010 thus showing a light at the end of the tunnel.

Orange to launch Exposure2

Orange this week launches Exposure 2, the second Exposure research survey commissioned to reveal the role of mobile media usage within the broader media landscape. Exposure 2 consists of independent qualitative and quantitative research, following a survey of more than 2,000 mobile media users from across all UK mobile networks. The survey focuses on consumer consumption of mobile media, and attitudes towards it when used as a marketing channel - particularly in comparison to other traditional and digital media.

Key Findings

Mobile Media Consumption

A mobile media user for the Exposure2 study is anyone who has used their mobile handset to do one of the following:

• Watch Mobile TV
• Use the mobile internet
• Use Bluetooth
• Send & receive mobile videos / MMS
• Send & receive pictures / MMS
• Send & receive emails
• Search the internet
• Play games
• Listen to the radio
• Listen to music
• Find local information
• Download wallpapers/pictures
• Download screen logos
• Download ringtones
• Download music
• Download games

Mobile media usage patterns differ greatly depending on a consumers location, with the strongest usage of mobile media being in the home: 67% of participants who used their mobile for email did so in their home and 56% for mobile internet browsing. Downloading, mobile content was also revealed as significantly more likely to be performed at home, with speed, convenience and alleviating boredom, cited as the key reasons for usage.

Meanwhile, high use of mobile media on public transport centred around entertainment services, such as TV, music and games, whereas services used most when out and about, such as local information and internet search, tend to facilitate movement.

Other key findings on mobile media usage included:

• The average age for mobile media users is 36, and 81% use mobile media more than once a week with 46% using it daily
• Men generally use mobile media more, although women are much more likely to use picture messaging
• The mobile internet pages viewed most often are search engines, email, news, music and film although, interestingly, a high proportion (55%) of people browse the mobile internet with no specific agenda, providing an opportunity for marketers to attract their attention

Attitudes to Mobile Media as a Marketing Channel

Research participants were asked to rate traditional and digital broadcast and print media on a number of attributes. Mobile media was overwhelmingly viewed as the most personal and innovative media, providing it with a unique place in the marketing mix.

The research revealed that people are very much open to mobile marketing and contained some important insights for brands looking to engage with consumers using the media:

• Short SMS codes remain a popular marketing mechanic, having been used by two-thirds of participants
• 70% of participants are attracted more by interactive marketing formats, such as sponsorship, coupons or picture messaging mechanics
• In general, consumers viewed marketing formats with perceived value as the most appealing, such as coupons offering discounts and sponsored games available for free download
• When clicking on adverts on the mobile internet, the next stages which are most popular are: adverts which click straight through to the brand’s website (favoured by 47%); voucher code or coupon (43%); click through to another area of the site (36%); entered in a competition (34%)
• Icons letting users know what to expect from mobile advertising were received positively by 76% of participants
• 82% of respondents have the operator’s portal as their mobile internet home page, making this page an extremely valuable piece of marketing estate

Steve Heald said: “Exposure 2 provides some terrific insights into how exactly brands can go about engaging consumers through mobile. The public is looking for campaigns that reflect their perceptions of mobile as unique and innovative and that entices and excites them with clever interaction. There’s also a clear signal that brands need to be clear on what consumers can expect from mobile campaigns.”

Bankrupt Nortel pays hefty bonuses to executives

Nortel Networks, as it continues to wade through bankruptcy protection, posted a $2.14 billion loss in the fourth quarter and a $5.8 billion loss for all of 2008.

The above news obviously paints picture where the restructuring and job losses will be normal activity at Nortel. However the news which I got to read today and which is not at all normal is that Nortel is going to pay $7.3 million as a bonuses to it’s executives.

This is quite extraordinary for me specially when employees at the bankrupt company were forced to decide between severance pay and their pension plans.

An Ontario Superior Court Judge Geoffrey Morawetz has allowed Nortel Networks Corp. to pay these bonuses to some Canadian senior executives as part of an incentive plan to keep them with the company to drive reorganization as it tries to emerge from bankruptcy protection.Earlier this month, a U.S. court overseeing Nortel's bankruptcy allowed the company to pay $22 million in bonuses the company said it needed to keep 880 employees worldwide.

All the amounts mentioned above do not include any payments to CEO Mike Zafirovski. This becomes quite apparent that whatever compensation Zafirovski receives will come from a separate pot.

It’s reported that under the terms of the key executive incentive plan, the top executives could get cash incentives of 100 per cent to 183 per cent of base salaries where the salaries are thought to in the $1-million U.S. annual range.

These new payments in terms of bonuses has not gone down well and there are vociferous protests specially from a lawyer representing a group of Nortel workers who have been fired but have not received severance pay.

For me this situation is like there is a guy who refuses to pay his debts but then spends £10,000 for a car. These are tough times and it should apply fairly to everybody.

Nortel has offered to give fired employees early access to pension plans and provide medical benefits to retirees under the condition that they drop their claims for severance pay in bankruptcy court.

The telecom equipment giant filed for bankruptcy protection in mid-January and has until May to restructure. Since filing the bankruptcy, Nortel’s revenue declined 15 percent year-over-year in the fourth quarter, down to $2.72 billion.

As a part of restructuring process Nortel may offload some of its major units, including its wireless equipment business, instead of trying to remain a whole company.

Recession is affecting Mobile giants big time.

In November 2008, Nokia cut 600 jobs in Finland, Britain, the United States, and Singapore. According to its final quarter trading statement of last year, Nokia’s operating profits slumped 80% to €492m on the back of a 19 per cent fall in sales to €12.7bn.

As a result, Nokia is cutting another 1,700 jobs around the world, including an undisclosed number in the UK and China. The handset group plans to shed staff across its divisions, including sales and marketing, research and development and its corporate offices. Nokia, which runs UK offices in London, Farnborough and Cambridge, said it was determined to cut costs to weather the recession.

In China, the company has put forward a voluntary resignation plan in February 2009, encouraging employees to resign on a voluntary basis. It was learned that Nokia China would make termination payments to the first 1,000 employees who are willing to resign between March 1 and May 31, 2009. The company says it hopes to reduce human resource costs and avoid involuntary redundancy through this measure. In addition, Nokia is also encouraging its staff to take unpaid leave this year.

Last week, Sony Ericsson plunged the mobile phone industry into crisis , issuing a disastrous profits warning as it revealed that it expected the world to buy 10 per cent fewer handsets this year. This quarter, it is expected to ship about 14 million mobile phones, for sale at, on average, €120 (£113) each. By contrast, it shipped 24.2 million phones at €121 in the previous three months. Sony Ericsson warned that weak demand from consumers, as well as destocking, meant it would lose up to €390m in the first three months of its financial year.

It will be the company's fourth consecutive quarterly loss. The company, which has already announced plans to cut 2,000 staff has so far refused to rule out further job losses. A spokeswoman said 1,000 employees have already left the business, with 1,000 more to follow soon in an attempt to achieve €300m in cost savings by the second-half of this year. However, at the end of January the company announced a further €180m cost-cutting drive, which "will have an additional impact on jobs". The business employs about 500 staff in the UK. One site in Manchester is already earmarked for closure.

Now, Vodafone, the mobile phone giant which is set to post profits of nearly £12bn for the year to March, has scrapped pay rises for all its 10,000 UK staff, ditched bonuses and told its sales reps to keep their cars for longer, as it attempts to trim £1bn from the firm's costs.

Less than one month after Vodafone said it was axing 500 jobs in Britain, a confidential email from Guy Laurence, the chief executive of the firm's UK business, was sent to everyone in Vodafone UK detailing the pay freeze, described by Laurence as a "tough decision to make, but a responsible one".

In the memo, Mr Laurence says: "If we had agreed to a salary rise it would have forced us to increase the number of redundancies in the recent announcement." Vodafone would be "asking company car drivers and those with job requirement cars to keep their cars for longer," he said.

Changes would also be made to "bonus plans for the next financial year", with the incorporation of new targets based on profit shares.

Vodafone said last month that job cuts at the telecoms group were necessary to allow it "to compete more effectively in the UK market". Retail staff were unaffected by the cuts, which largely fell on staff at the firm's Newbury headquarters, with 170 being made redundant.

By the way, According to Telegraph, Motorola, the fifth biggest player, is thought to be on the verge of bankruptcy.

Nortel bankruptcy creates worry for 2010 and 2012 Olympics

Everybody by now knows what happened to Nortel. On 13th January Canada's Nortel Networks filed for bankruptcy in Delaware under Chapter 11 and Chapter 15 guidelines.
Nortel has been struggling financially from the past couple of years and was cutting jobs at regular intervals. Toward the end of the year, the Toronto-based company was warned of a possible de-listing from the New York Stock Exchange.

The Chapter 15 filing enables a company to seek a U.S. bankruptcy court's recognition of a foreign bankruptcy case as the main or controlling proceeding.

There might be some potential buyers for Nortel but let’s see what happens in the coming days.

Nortel Networks at the moment is of course the topic of much conversation and speculation. In my view following are the key issues which Nortel has to deal with in the immediate future:

• It might loose some of it major partners, like Microsoft and how does the bankruptcy will affect its smaller partners, like Airvana,


• How long it can hold onto skilled talent in places like Ottawa, Ontario, and Richardson, Tex, and,


• Where the company should continue to focus its product energies as its fate plays out.

These events have affected many in the industry but one of them in particular is the organizers for the 2010 Vancouver Winter Olympics and the 2012 London Olympics. Remember Nortel is the official sponsor for these two Olympic events and any trouble in Nortel is to stimulate significant trouble for these events.

Although Nortel Networks says, at least for now and before the bankruptcy court gets involved, that it remains committed as a sponsor and official network infrastructure provider to the 2010 Vancouver Winter Olympics and the 2012 London Olympics.

Back in July, Nortel signed up as a Tier One Olympic sponsor, and, to support the London Olympics. In addition to million of dollars in cash, Nortel also committed to provide the network infrastructure for communications in cooperation with British Telecom for the 2012 Olympics.
At the moment Nortel is giving every signs to reassure its commitment to the games as a 'tier-one' local sponsor and official network infrastructure provider for the London games.
Under the London sponsorship deal, Nortel is to supply network infrastructure, including secure networks, local wireless networks, call center and fixed landline infrastructure to support more than 205 international sporting organizations, 20,000 members of worldwide media, 9 million spectators, and "billions" of television viewers.

This looks quite staggering so just imagine the scenario where Nortel can’t fulfill its commitment.
Just like it has done with the 2012 organizing committee, Nortel is assuring the Vancouver Olympic organizing committee that it will stand behind its commitment to the 2010 Winter Games.

It does makes sense that Nortel fulfill it’s commitment I think it would be able to do so as much of Nortel's support has already been delivered and is expected to be in place by May.