Portugal’s recent agreement with the EU and the International Monetary Fund (IMF) for a bail-out of about €78 billion has been long in coming, and follows months in which – as the Irish government did before – the government tried to convince itself that it could meet its budget deficit targets and loan repayments without such help.
The package will inevitably cause Portugal to weather a continuing recession, and will result in considerable economic and social challenges as it freezes public sector wages and pensions (until the end of 2013 at least) and reduces the number of civil servants on the payroll. Pundits suggest that the economy may contract by 2% in 2011 and again in 2012, leading to reduced spending in the public sector and a sell-off of state-owned assets including stakes in a range of companies.
How will this affect the telecoms sector? Fortunately, some aspects of the sector are immune from the worst elements of belt-tightening since basic services, as many surveys have found, are considered indispensible. This will buttress consumer spend for mobile telephony and internet access, though discretionary spend such as on upgraded devices are likely to suffer. Portugal’s telecom market still represents one of the highest contributions to gross domestic product (GDP) in the European Union (EU), though this has fallen from 5.1% in 2003 to a steady 4.8% since 2007. Nevertheless, this highlights the importance placed on the country’s telecom sector to overall productivity.
The government is aware that fiscal pressures to reduce debt will cut a swath through existing commitments for public funds, but telecoms infrastructure represents one sector at least which can help pull the country out of the looming recession. This can be on a number of levels, including the economic stimulus derived from opportunities created by a good quality national broadband network. Both the regulator and the government have been active in promoting broadband: a key government program rest with the ‘Ligar Portugal’ initiatives designed to increase technology adoption, employment, and development in the country. The government has invested €1 billion to the enterprise, which is being matched by a similar sum from the private sector.
Indeed in the fibre sector, Portugal was one of the first in the region to develop an effective nationwide strategy, involving the cooperation of multiple operators, the government, and public subsidies. As a result of these efforts, by the beginning of 2011 there were around 130,000 subscribers to FttH/B: the number of fibre-based subscribers 26% in the fourth quarter of 2010 quarter-on-quarter, and 217% year-on-year. FttH/B now accounts for more than half of all new broadband subscribers.
Overall telecom investment fell sharply in 2008 but soon recovered. Most investment is now geared to fibre and mobile network upgrades (the latter principally to prepare for mobile broadband services based on HSPA+ and LTE technologies). This is precisely what the country can look forward to in coming years: on a pragmatic level, individuals and businesses benefit enormously from their ability to engage in e-commerce and telecommuting. Continuing investment in upgraded broadband networks facilitates this enterprise, and will alleviate the anticipated financial pressures to come.