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S&P: RBOC Credit Ratings Slip

The latest Telecommunications and Cable Industry Report Card from credit ratings agency Standard & Poor’s shows that increased competition in all sectors of telecom and cable continues to drag on the big carriers' financial health. The incumbent local exchange companies (ILECs) are feeling the heat from cable companies, but the cable guys are being chased by direct-to-home (DTH) competitors DIRECTV and EchoStar, both of which are racking up strong subscriber growth, the report states. Highlights from the report include:
  • Sprint Corp. (NYSE: FON) and Nextel Communications Inc. (Nasdaq: NXTL) were placed on positive CreditWatch -- the agency's designation for when material events occur -- thanks to improved performance at Sprint’s PCS wireless unit, and Nextel’s solid third quarter and clarity on capital spending plans for spectrum and technology issues.

  • BellSouth Corp. (NYSE: BLS), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ), and their wireless units, had their negative CreditWatch listings resolved when the long-term ratings on BellSouth and SBC, along with jointly-owned Cingular Wireless, were lowered to 'A' from 'A+'.

  • Corporate credit ratings for Verizon and Verizon Wireless were affirmed at 'A+'.

  • The corporate credit rating on AT&T Wireless Services Inc. (NYSE: AWE) was raised to A/Negative/A-1 on Oct. 26, following completion of its merger with Cingular.


The report attributed the SBC and BellSouth downgrades to heightened competitive pressures in the companies' wireline telephone segments and integration risks from the combination of Cingular with AT&T Wireless.

Verizon faces the same wireline pressures, but it gets a bit of a hall pass because of its strong wireless segment and moderately better capital structure, given its anticipated paydown of debt over the next few years, the S&P analysts note. The report card also gave negative ratings for three cable television companies, attributing them to the impact of continuing inroads by DTH companies eroding the cable subscriber base:

  • The outlook on Charter Communications (Nasdaq: CHTR) was revised to negative from positive after the company indicated a higher-than-expected subscriber loss.

  • While the ratings of cable operator Insight Midwest L.P. were affirmed on Sept. 2 (albeit with a negative outlook), Standard & Poor's lowered the rating on the company's nearly $2 billion secured bank loan package to 'BB' from 'BB+'.

  • DTH pressure also factored into the downgrade of ratings on Mediacom Communications Corp. (the corporate credit rating was lowered to 'BB-' from 'BB'). The downgrade was attributed to a 4.4 percent year-over-year loss of basic subscribers -- a significant acceleration from the 1.4 percent loss a year earlier. Other factors contributing to the downgrade include the less lucrative demographics of Mediacom's smaller markets, as well as the potential of increased competition from telephone companies.


— Chris Somerville, Senior Editor, NGS

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