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Moody's outlook for US wireless industry now positive as cash flow grows

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The debt ratings agency, Moody's has revised its outlook for the US wireless industry to positive, as decreased customer churn boosts cash flow for industry leaders AT&T and Verizon.

"The positive outlook is based on the expectation that industry revenue will rise by about 4% to 5% this year and next and that industry leaders AT&T and Verizon Wireless will see a big jump in cash flow both years" said Dennis Saputo, a Moody's Senior Vice President and an author of the report. "AT&T and Verizon generate about 67% of industry revenue and about 82% of EBITDA, and will account for most of the gains."

Moody's expects that EBITDA minus capital spending -- a proxy for free cash flow -- will increase almost 11% this year for the nine companies Moody's covers in its latest ratings report, before increasing an additional 12%-13% in 2013. That's because more stable pricing, coupled with strong service offerings especially from the two industry leaders are boosting customer retention, now that the Apple iPhone is no longer exclusive to any carrier, says Moody's.

Moody's expects capital spending to hold steady too, as both Verizon and AT&T will have completed their LTE networks in 2013, and competitor Sprint in 2014. Still, increasing usage and new service offerings will keep stress on the networks and drive still sizeable investment.

Smaller carriers will continue to struggle, says Moody's, as contributions from Sprint Nextel Corp., Leap Wireless International and T-Mobile USA among others to industry free cash flow will fall to less than 1% next year.

Moody's notes that several risks could derail its positive outlook, such as larger-than-expected capital investments by AT&T and Verizon causing free-cash-flow growth to drop below 4%.

Moody's industry outlooks reflect the rating agency's expectations for the fundamental business conditions in the industry over the next 12 to 18 months.

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Tags: at&t  verizon wireless  moodys  USA