With AT&T Job Cuts, Telco Recession is Official

[qi:011] AT& T announced this morning that it is going to cut 12,000 jobs, or 4 percent of its workforce, joining a long list of companies that are making cuts in response to the economy’s growing woes. These job cuts are not a surprise, because AT&T is seeing its wireline customer base eviscerated. The cuts will be rolled out in December and through 2009, though the company might add positions in its wireless and broadband business. The company said it is going to cut its capital spending as well. With this news, there is no denying it: A full-scale recession has hit the telecom sector, as I had outlined last month.

UBS Research estimates that AT&T could cut its capex by more than 10 percent in 2009, much higher than previously expected 4 percent cuts. All these cuts are going to roll down hill to the equipment vendors. Ciena, for instance, is one company that is going to get hit hard, because AT&T accounts for nearly 25 percent of its revenues. Adtran and ADC Telecom, other AT&T customers, could be hit hard as well. Other carriers, facing similar pressure, are going to follow suit and cut their spending on wireline businesses; at the same time they could also reconsider their spending on video rollouts. UBS is forecasting an overall telco decline of around 7 percent. U.S. cable companies’ capex could be down 5-10 percent.

This week, Time Warner Cable’s chief financial officer, Rob Marcus, warned that his company is expecting a dip in video, high-speed Internet and telephony subscribers in 2009 as the economy tanks. No surprise — widespread layoffs in the New York area, especially at the Wall Street firms and banks, is going to impact its customer base. Nascent competition from Verizon is only going to cause more problems for this company.

As another data point for the general malaise, Infonetics Research today released a report that shows that sales of service provider switches and IP core and edge routers dropped 4 percent sequentially to $3.3 billion in the third quarter of 2008. Sales were up 21 percent from the third quarter of 2007, however. Apparently Cisco is losing some market share to Juniper Networks, Huawei, NEC, and Alcatel-Lucent. Infonetics is predicting that the service provider telecom capex will contract in 2009.

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