IT sector braces for public sector cuts, seeks clarity on IT policies

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IT sector braces for public sector cuts, seeks clarity on IT policies

Ian Grant

The UK's information and communications (ICT) sector is bracing itself for massive cuts in public sector IT spending, but this may offer fresh opportunities to small and medium (SME) suppliers, says the industry's trade body, Intellect.

In its annual market review published today, Intellect said the overall market outlook was "uncertain".

The industry's challenge was to make politicians and officials understand that technology-based change programmes could deliver long-term savings and efficiencies that could help to cut the structural deficit, now about £890bn.

Intellect director-general, John Higgins, said the ICT industry had proved itself resilient and innovative in the face of serious uncertainty. "Many companies have already cut their costs using technology, so that they don't have to raise prices or lower standards of service. It is now the government's turn to tighten its belt. Used intelligently, technology could ameliorate the wicked choice between tax rises and public service cuts," he said.

The report noted public scepticism about very large public sector ICT projects. These have boosted public sector spending on IT to about £16bn a year. This led to a Conservative manifesto pledge to restrict public sector IT projects to £100m maximium.

This would help smaller suppliers compete for public sector contracts, which could open up a new set of innovative suppliers to government, Intellect said. But it did not cut the overall risk of the projects.

"Building an integrated system by running several concurrent contracts introduces new risks," it said. "Suppliers may well have to adopt new ways of working in support of this approach."

Success would depend on consistent policy direction in government, an efficient and navigable procurement process and ministers and officials having the skills to act as an intelligent customer, it said.

The telecommunications sector was quietly confident. Intellect quoted an Informa survey which found that 75% of respondents believed 2010 sales would be higher, and 42% expected growth of more than 10%.

Although there was a desire to extend high speed broadband to more people, network operators were reluctant. Intellect said mobile operators had little inclination to invest in 3G (the current generation of mobile).

"Those operators with the spectrum that can be used for mobile broadband are finding the costs of building networks too high for the market to bear. Those that do not have spectrum have no certainty whether more will be available," it said.

The previous government did not direct communications regulator Ofcom to release more spectrum before the election, although this is mandated by the new European telecommunications spectrum plan.

"It remains unclear whether a new government will look at this issue again, given how bruising the battles over the issue were first time around," Intellect said. Until this changed existing network operators would sweat their assets and no new players would enter the market, it said.

One bright spot was the satellite sector, which is worth £6.5bn/y and employs 68,000. Two new satellite projects are due to launch this year. Hylas, due in 3Q10, is a new regional broadband satellite that could deliver 2Mbps broadband access in UK and Europe. SES Astra has let a contract for four new broadcast satellites which will increase HD broadcast TV services in the UK.

The consumer electronic sector did not suffer as badly as some in the recession, buoyed by sales of digital and more recently 3D television sets. The football world cup next month is a chance to speed up these sales.

Project Canvas, the BBC's plan to deliver programming over broadband, will help too if it launched this year, Intellect said.

Spending on "information superiority" systems by the military will reach $64bn this year, and is a huge opportunity for local developers, it said. However, uncertainty about the role of the defence forces could reduce local demand. Cybersecurity, which cuts across national borders, is likely to offer opportunities, especially for SMEs, it said.

Turning to climate change, policy makers had largely ignored ICT industry representations, Intellect said. The CRC Energy Efficiency Scheme could displace rather than reduce emissions and make it harder for data centres in the UK to win and retain business, it said.

The ICT industry is getting better at responding to climate change, but transport substitution, supply chain logistics and building management, which could use ICTs to save carbon and cost, are still hopelessly under-deployed. "Behavioural, cultural and regulatory barriers to uptake are proving difficult to unpick," Intellect said.


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