U.S. Telecom and Cable Credit Profiles to Weaken in 2009

Debt ratings agency, Fitch has updated a ratings report issued last month and now says that it expects that revenue growth will be negatively impacted by growing local exchange carrier access line losses and cable basic subscriber losses. Additionally, business and commercial service revenue is expected to slow materially in 2009 as unemployment grows. Wireless, while still a source of revenue growth is expected by Fitch to feel pressures in 2009 due to further slowing of net additions, increased ARPU pressure offset, in part by, positive momentum from increased wireless substitution of land lines.

Fitch  also anticipates that EBITDA margins will be negatively impacted by the erosion of higher margin legacy services, growing wireless cost of acquisition and the expected reform of regulatory subsidies. Capital spending can and will be reduced by some operators, but many others have limited ability to reduce already low capital spending and areas of strategic importance will still require material investment for the industry. Additionally, the significant merger and acquisition activity of the past 12 months will have a material integration capital component that will in part offset capital spending reduction plans.

Finally, free cash flow will be negatively impacted by slowing revenue and EBITDA margin pressures, higher debt amounts from 2008 including high interest costs and the expectation that companies will contribute voluntarily to their pension plans in 2009 due to weak 2008 equity market results. On a positive side, liquidity remains strong for the sector although recovery multiples are experiencing pressure from falling asset values.

The full report (pdf file, 9 pages) can be found on the Fitch Ratings website (registration required).

Posted to the site on 11th January 2009