Last week was challenging in a number of ways, not the least of which being the shock generated by Cisco’s cautious comments on its quarterly call. That was enough to cause a route in the stock market and raise concerns about the state of technology. As we indicated at the time, there’s good reason to be worried. The era of high margins and growth rates relied on a continued renewal of the benefit case for tech investment, and since 2002, we’ve apparently lost the key to unlocking the next wave.
CIMI Corp. finished its carrier survey this week (the number of operators is smaller than the number of enterprises, so it’s easier to get things in and tabulated), and we’ve found some sense of caution there as well. Operators increased their level of concern about most of their topics, and reduced it for none. Normally that means increased anxiety about the business model, which can lead to spending conservatism. We don’t see clear signs of that yet, but the trend is a bit troubling.
One of the reasons for carrier angst is the uncertainty surrounding net neutrality, particularly in the U.S., as well as concerns about consumer privacy issues and their impact. In the case of net neutrality, the FCC inquiry brought out the usual madness on both sides of the issue, and this sort of thing always raises the most FUD and generates the least insight. The comments are now closed, and what we hear is that the FCC is not going to propose a need to extend net neutrality principles to “managed” or “special” non-Internet IP services.
The bigger question is whether the FCC will propose its “third way” of regulation, declaring broadband a telecommunications service and then forbearing from applying many of the Title II rules, as it may do under Section 706 of the Telecom Act. Operators fear that applying Title II would inevitably lead to regulation without forbearance, which could reduce their margins and accelerate disintermediation.
The privacy stuff is potentially a major issue for the over the top (OTT) guys. The Obama Administration in the U.S. is promising to appoint someone as a watchdog for consumer privacy, and the EU is also looking at a sweeping policy on privacy. We appear to be moving closer to an opt-in process, something that advertisers and portal players know is likely to result in fewer than 20% of consumers opting in, versus only about 8% opting out where that choice is available. But even without changes here, the privacy gaffes of the social network players like Facebook have made people more wary. We’re told that record numbers of Facebook users have changed their profiles to reduce their exposure of personal information.
Most of the major market moves won’t happen until early next year because nobody wants to overhang the current holiday buying period. By Q2, however, it may be a good idea to hold on to your hats.