More Mixed Telecom News

BT Group PLC announced a surprise profit warning caused by cost problems in its global services unit while Qualcomm Inc. posted higher profits but lowered its 2009 revenues forecast. AT&T is buying Centennial Communications Corp., a wireless and broadband service provider, and Wayport Inc., a Wi-Fi service provider. In other news, the Federal Communications Commission (FCC) approved the Verizon Wireless/Alltel Communications LLC merger.  

Focal Points:

• BT Group, the UK telecommunications company, admitted it failed to get control of burgeoning costs at its expanding global services unit and therefore profits would be lower than expected. BT has been expanding its global services unit, which manages IT and telecoms systems, for several years. For the fiscal year ending March 31, 2009, BT said it still expects to grow revenue, but EBITDA is now expected to decline slightly, having previously been expected to rise. Executives said the full-year global services margin is now likely to be in the range of seven to eight percent. The value of the stock dropped by more than 25 percent on the news.
• Qualcomm posted its fourth quarter and fiscal 2008 results. The chip-maker had quarterly revenues of $3.33 billion, up 44 percent from the fourth quarter last year and net income of $1.06 billion, up 16 percent year-on-year. For the 2008 fiscal year, the company had revenues of $11.13 billion, up 25 percent from the previous year and net income of $3.74 billion, up 10 percent year-over-year. However, because of the credit crisis and worsening macroeconomic conditions, the company expects lower growth in 2009 due to a reduced forecast for CDMA devices.
• AT&T is acquiring Centennial Communications for $944 million in cash. The deal will help AT&T expand its wireless coverage in areas of the Midwest and Southeast as well as Puerto Rico and the U.S. Virgin Islands. Centennial has about 1.1 million wireless customers. The AT&T Mobility unit is buying the Wi-Fi service provider Wayport for approximately $295 million in cash. The addition increases the number of AT&T Wi-Fi hotspots in the United States to close to 20,000. Also last week the FCC approved Verizon Wireless' proposed $28.1 billion acquisition of Alltel, a move that will create the nation's largest wireless operator. The approval is contingent on several minor conditions, including the requirement Verizon Wireless honor Alltel's existing roaming agreements for four years.

Experton Group believes growth in telecommunications devices and services will slow due to the global slowdown while consolidation in the wireless market in the U.S. will put upwards pressure on wireless costs. IT executives should aggressively negotiate and lock in long-term wireless contracts while the market remains in turmoil. In a similar vein, IT executives should expect the IT and telecommunications global services market to be likewise impacted and therefore should negotiate with multiple providers for best pricing, SLAs, and terms without assuming an unreasonable level of risk.