The first major casualty in the communications sector from the austerity budget introduced across UK government departments has been Cable & Wireless Worldwide (CWW). The carrier, which counts Glasgow City Council and the National Health Service among its customers, has said it expects ‘a very significant slowdown’ in UK public sector contracts.
As a consequence it revised its earnings predictions to the bottom of its previously stated £443.5m to £484m range. The statement resulted in a 17% fall in the company’s share price and saw £370m wiped off the value of CWW.
At the heart of the fall are expectations that the newly demerged CWW would have won extensive new contracts in preference to rival BT and CWW’s exposure to ‘non-contracted spending’.
Non-contracted spending – additional fees and charges associated with the large contracts that CWW engages in – is typically worth around 20% of a contract’s total value.
The extent to which that gloomy news impacts the wireless sector is unclear. The bulk of CWW services are provided in the fixed line and IT sector, but it suggests that technology will not be immune to the cutter’s axe.
Duncan Swan, partner and head of end user sector at consultancy Analysys Mason, thinks that while some parts of the wireless market are insulated from the cuts by their nature, others will feel significant pain.
‘The majority of wireless sector spend within the public sector is with Airwave for the provision of their digital trunked radio network that primarily supports mission critical communications for the emergency services,’ he says, pointing out that even core requirements such as emergency services will be required to scale back spending.
‘Whilst the provision of the underlying network remains a core communication requirement, we anticipate that individual departments, be that NPIA for police; Department of Health for ambulance; and Communities & Local Government for fire, will each be seeking ways to reduce their spend for Airwave. This could be achieved in a number of ways, including the potential to look at extending the current contracts with Airwave in return for more favourable payment profiles.’
‘There are also signs that individual police forces will postpone, or even cancel, any plans they may have had to upgrade their Airwave terminal equipments,’ adds Swan.
‘The focus will be on better use of Airwave and in particular maximising use of the network within existing usage allowances for new applications and minimising any additional traffic usage charges, particularly in association with voice usage. All in all, this will have the effect of stifling potential investment in any further innovation that Airwave may have planned for their network.’
Although Wireless approached Airwave for comment, the company did not respond in time for the magazine’s deadline.
‘Our customers are facing huge pressures on resources, both in terms of headcount and budget, and are feeling pressure to manage those resources but still keep service delivery to pre-budget levels,’ says Paul Bergin, head of managed services at Arqiva Wireless Access, which runs the communications department at Warwickshire Police.
‘Whilst at first this seems like a near impossible task, using a managed service provider, such as Arqiva, and outsourcing the management of a specialist area, such as radio services and communications to a specialist provider can help achieve that task. This type of approach can directly help in the face of budget cuts, by both de-risking delivery of essential front line services to a trusted partner, and by the managed service supplier being able to offer both economies of scale, best practice, mature processes and centralised product and technology development with shared costs across all public sector customers.’
Chris Davies, general manager of D-Link UK & Ireland, sees huge challenges as the public sector seeks to cut back, but its workers make more and more use of wireless services and technologies. ‘The public sector is facing a series of stringent budget cuts both nationally and locally,’ he says.
‘Departments are being asked to cut 25% of their budget, resulting in many projects across the NHS and elsewhere being cancelled, yet at the same time their networks can’t stand still. Wireless technology in particular is continuing to grow in popularity, with the rise of mobile computing and the latest smartphones, most of which have 3G and wireless capability.’
Davies is worried the public sector could get left behind as investment stalls. ‘Wireless technology is also constantly evolving, offering users greater speeds, performance and range, so by cutting investment in wireless, the public sector risks falling behind at a time when it should be delivering a 21st century experience to employees and the public at large.’
Central government is set to play a growing role in the decision making process as to what cuts should be made and to which services. ‘It is important to also understand the role that Cabinet Office and the PSN (Public Sector Network) will increasingly play,’ says Swan.
‘It is well documented that Government chief information officer John Suffolk has written to departments, non-departmental public bodies and arms length bodies indicating that they should adopt PSN standards up to IL3.
This is the security accreditation standard set by CESG, the national technical authority for information assurance, for networks operating up to ‘restricted’ level - and Airwave is one such network. All future contracts, contract extensions, and modifications for telecommunications networks – both fixed and mobile – must be approved by the CIO Council Implementation Steering Group to ensure a consistent ICT Strategy execution and therefore adoption of the PSN.’
The cuts are so extensive that every aspect of wireless service and equipment is under assessment. ‘There is no doubt that all service providers and vendors will have to work harder to make the case for sales in wireless technology and associated products,’ says Swan.
‘Nothing can be considered to be insulated in the current UK political and financial climate. Where wireless communications are mission critical to the operations of a department this will not relieve the need to have to justify the expenditure.’
For Davies, a situation in which the wireless industry tries to do more with less and makes it as easy as possible for public sector organisations to invest needs to be fostered. ‘So it isn’t seen to be standing still, the public sector needs to consider alternative ways to purchase wireless technology and get better value for money through procurement,’ he says.
‘Many networking vendors are now offering more flexible payment terms on products and services in the current climate, therefore the public sector should make use of this to give them access to leading edge wireless technology without a lot of the financial burden.’
That might be one positive amidst all the negatives, and Swan also sees only a small silver lining to the looming cloud of budget cuts: ‘From a positive perspective, this may well start to incubate some very innovative thinking around the way that mobile communication is provided going forward and the additional benefits that this could potentially achieve,’ he says.
Bergin at Arqiva agrees: ‘The challenge for vendors is to support organisations through these times by de-risking services through service level agreements, cost saving measures and the efficiencies a managed service provider can supply,’ he says.