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06 Oct 2000
MOODY'S CONFIRMS RATINGS OF AT&T AND SUBSIDIARIES (PARENT SENIOR UNSECURED AT A1), BUT CHANGES OUTLOOK ON LONG TERM SECURITIES TO NEGATIVE FROM STABLE
New York, October 06, 2000 -- Moody's Investors Service has confirmed the ratings of AT&T (senior
unsecured at A1, commercial paper at Prime-1) and its subsidiaries,
but has changed the rating outlook on the long term securities to negative
from stable. The outlook change reflects AT&T's reduced flexibility
within it current long term rating following a series of operational and
financial setbacks. While none of these events is material in its
own right, the cumulative effect is a reduction in credit quality.
The sharp drop in the share price at AT&T and the disappointing performance
of its wireless tracking stock have placed pressure on management to take
steps to bolster the company's market valuation. While no actions
have been announced following the recent strategic review by AT&T's
Board of Directors, Moody's notes that nearly all options available
to AT&T to enhance its share price would likely have negative implications
for fixed income holders and could be sufficient to trigger a formal review
of the current ratings.
During 2000, AT&T has faced a number of disappointments,
some of which are industry wide in nature, while others are unique
to the company. Long distance voice pricing has declined at a more
rapid rate than was anticipated, particularly in the consumer segment.
The entry of the RBOCs into the long distance market following regulatory
approvals will likely exacerbate the situation. AT&T had undertaken
a significant cost reduction effort in the past which has mitigated the
impact of declining revenues on operating cash flow, and has limited
capital investment in this segment. However, revenue declines
are expected to exceed the ability of the company to further reduce costs,
leading to weaker cash generation.
Efforts to expand the rollout of broad scale cable telephony have been
constrained by the lack of progress in reaching agreement with non-affiliated
cable systems. While the rollout of local telephony and high speed
data over AT&T Broadband's network may reach year end targets,
the company has offered pricing incentives to accelerate customer sign
up. There is also considerable investment remaining to offer telephony
and high speed data across most of its cable footprint.
The business segment has been an area of shortfall where the causes primarily
reside within AT&T. Following the establishment of Concert,
the business oriented venture with British Telecom, the retained
business segment suffered from inadequate management attention to sales
force changes. As a result, there was a meaningful defection
of accounts to the competition. While management has undertaken
steps to address the problem, they have acknowledged that recovery
will take an extended period of time.
AT&T has also suffered the loss of a number of senior executives in
the past year. While management depth is a source of pride for
the company, the current environment in the telecom industry provides
limited opportunities for hesitation in execution or even modest missteps.
AT&T's wireless operations continue to have meaningful investment
requirements. There are modest gaps to be filled in its footprint
and the network will ultimately need to be upgraded to expand its product
offering into 3G. Participation in the pending spectrum auction
may also be of interest.
The company retains a number of strengths, including its strong
market positions and cash generation capacity. AT&T also has
a number of potentially monetizable assets, including its minority
interests in a number of cable operators, as well as its ownership
of 25% of Time Warner Entertainment. The FCC's approval
of the acquisition of MediaOne was subject to AT&T's agreement to
divest either its interest in TWE, Liberty Media or approximately
9.7 million cable subscribers.
The following ratings have had a change in outlook to negative:
TCI Communications and subsidiaries
Preferred Stock-"a2" with AT&T guarantee, "a3' unguaranteed
TCI Pacific Communications
MediaOne Group, Inc.
MediaOne of Delaware, Inc. (formerly Continental Cablevision)
AT&T Corp. is a leading provider of global telecommunications
services and is headquartered in New York City.
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
Senior Vice President
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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