Enterprise telecom spending: The big unknown following AT&T's consumer comments

AT&T CEO Randall Stephenson delivered the quotes heard around the technology industry. Stephenson's comments on Tuesday about consumers not being able to pay their bills rattled the stock market. But what about enterprise telecom spending?

First, here's what Stephenson said in comments at the Citigroup Entertainment, Media and Telecommunications conference:

"We're really experiencing some softness on the consumer side of the house from the economy."

And when asked about how this softness was showing up in AT&T's metrics Stephenson said:

"The main place we're seeing it is non-pay disconnects, and the non-pay disconnects are happening across all consumer product lines, right? So whether there be traditional access lines or broadband and even wireless -- but not so much in wireless. We're seeing some interesting dynamics play out. As the economy gets soft wireless starts to become the last thing it seems like the consumers turn to. And that traditional access line becomes one of the first that they turn to. And so we're seeing softness on the access line side. And again, we look at it from a competitive versus non-pay disconnect, it's non-pay disconnects driving the softness on access lines and on broadband. We are seeing it on broadband as well."

The takeaway. Consumers can't pay their bills. Will the enterprise side of the equation pull back? On that front Stephenson was more upbeat, but acknowledged that enterprise spending was a big unknown.

Stephenson said AT&T's enterprise business has been a pleasant surprise.

Stephenson noted:

"If you think about the decision-making process on the enterprise side it makes sense. Why do people move to IP? Save cost. You go through a down cycle, that's probably not going to change people's thinking a whole lot unless they're capital constrained because there typically are capital costs for doing this migration. So companies are migrating to IP to save cost in a down cycle. It will be interesting. I don't think it will have a radical effect on us. We're not seeing it now. But at the same token, when they move to IP why do they start to buy more bandwidth? Because of cost saving initiatives for their moving applications and so forth on to been onto the IP back home. A classic case is myself. We put in 13 TelePresence sites around the globe, AT&T did. And in 2008 I went and slashed everybody's travel expense budget and it's a very nice little cost savings analysis and people do this same kind of thing, they put more applications, more capabilities on the bandwidth/operating cost sales. So I'm hoping we can manage our way through this down cycle but time will tell."

All that sounds quite plausible and it's the company line from a lot of folks like Cisco CEO John Chambers, who has noted some lumpiness amid a mostly optimistic outlook. But enterprise telecom spending could still slow. Merrill Lynch on Wednesday released its latest CIO survey and showed that telecom spending plans for 2008 decreased a bit. In Merrill's December CIO survey, which surveys 100 CIOs, telecom spending growth was projected to be about 1.6 percent in 2008. That tally is down from 2.2 percent projected just three months ago.

About 30 percent to 40 percent of CIOs said their telecom spending budgets were sensitive to an economic slowdown. Merrill Lynch, however, said that percentage may be understated. If the CEO issues a top-down slow the spending mandate the CIO will fall in line.

How the impending economic fall out impacts business spending is anyone's guess at this point. Enterprise customers can consolidate telecom spending with the big players like AT&T and Verizon at the expense of Sprint and Qwest. Or CIOs can pull back on overall spending.

Telecom giants are obviously hoping that enterprise spending holds up. They will need all the help they can get if consumers are being disconnected for not paying the bills.