Cash, realism needed to avoid telco crunch

According to Cap Gemini Ernst & Young Asia Pacific CEO John Edwards, telcos must generate cash to invest, so they can keep their customers and move to low-cost voice and data services.

"If they can't hang on to the customer base through the new service generation, they are stuffed," he told The Business Times. The fate that awaits ailing telcos is "withdrawal from markets, selling off of bits of the business, breaking up of companies".

More important than the move to third generation (3G) wireless services is for telcos to convert their fixed networks to Internet Protocol networks, so that they can carry voice and data cheaply.

"If they are not making that move to IP, packet switch network to accommodate low-cost data low-cost voice," Edwards warned, "they are going to be stuffed."

Even after they do this, however, telcos have to contend with the poor sentiment in the stock exchange and the venture capital market, which are frowning on the industry.

Analysts, Edwards said, have a skewed view of things, and were responsible for sparking the race among telcos to sign mobile subscribers. "The fact that many of the Asian telcos were signing up a lot of new subscribers but were churning their subscriber base at 30 percent a month was not being looked at," he noted.

Now, the euphoria over 3G has been replaced by suspicion. "It has gone from one extreme to the other," Edwards complained. "What it needs is to be realistic."