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Announcement:

Moody's: European telco's network deals will ease capex burden but investment still needed

31 Jul 2013

Madrid, July 31, 2013 -- While network sharing/joint investment deals will ease the capital expenditure burden on European telecom service providers in the short term, they will need to increase their network investments to ensure long-term revenue stability, says Moody's in a Special Comment report on the sector published today.

The new report, entitled "European Telecom Service Providers: Network Deals Will Ease Short-Term Capex Burden But Investment Still Needed for Long-Term Revenue Stability", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

The current tough regulatory and operating environment is pressuring the revenues and ratings of Moody's-rated European telecom service providers. If this continues, Moody's expects these companies to suffer further declines in revenues of 1.5% in 2013, and for revenues to be flat in 2014. However, ongoing intensive capital expenditure (capex) is needed to meet consumers' growing demand for converged services.

"Alternative ways to acquire network capacity enhancements will help to ease the capex burden for European telcos in the short term. We expect a growing number of telcos will enter network-sharing agreements or look at other ways to invest without further compromising their already strained balance sheets," says Carlos Winzer, a Senior Vice President in Moody's Corporate Finance Group and author of the report.

While most of these alternatives are credit positive in the short term because they are an efficient way to deploy limited cash investment, Moody's believes they are only temporary measures that will not provide the level of network investment needed for these companies' long-term revenue stability.

"In the long term, we see more merit in telcos controlling their own networks and making greater investment. We also expect regulatory pressure to ease or at least support industry consolidation and companies that are willing to invest in the network through adequate returns on investment," adds Mr. Winzer.

Incumbents such as Deutsche Telekom (Baa1 stable) will benefit by sharing the investment cost while limiting competition. Challengers get to join an existing network without the large up-front investment. However, network sharing agreements could push smaller companies focused on just mobile or fixed-line services out of these markets because these deals will probably be restricted to a couple of companies.

Network spinoffs will release cash, but in the long term this option is invariably credit negative because controlling the access network gives the incumbent operator a significant competitive advantage. Moody's does not expect telcos to take this approach unless there are compelling reasons or regulatory requirements to do so, as in the case of Telecom Italia SpA (Baa3 negative).

In-market consolidation will be credit positive because it will reduce the fragmented nature of these markets and achieve scale, integration and synergies. However, only those companies with greater financial flexibility will be able to take this approach.

Moody's expects continued standalone investment from companies which have enough headroom under their current financial ratios to avoid pressure on their rating such as TeliaSonera AB (A3 stable), Telenor ASA (A3 stable) and Deutsche Telekom, and those focused on their domestic market (Portugal Telecom, SGPS, SA (Ba2 negative), Belgacom Societe Anonyme de Droit Public (A1 stable), and Swisscom AG (A2 stable)). Moody's does not expect many challengers to undertake network investments on their own because it is costly and takes time to develop.

Subscribers can access this report via this link http://www.moodys.com/research/European-Telecom-Service-Providers-Network-Deals-Will-Ease-Short-Term--PBC_156649.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com

Carlos Winzer
Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paloma?San Valentin
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: European telco's network deals will ease capex burden but investment still needed
No Related Data.
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