USA's Telecom Stability Driven by Data Growth, but Concerns Exist for 2014

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Fitch Ratings says that the U.S. Telecommunications sector's outlook is stable based on long term robust data service demand and general stability in credit protection measures. However some concerns remain about the commitment and capability of certain companies to recover from past leveraging activities.

Data service demand transcends all subsectors of the industry and should be pushed by a growing penetration of smartphones/connected devices, expanding internet accessible video entertainment, high bandwidth wireline interconnection requirements, data hosting, cloud and other data sensitive services.

Accelerated and aggressive infrastructure investment also has positioned the sector favorably to respond and garner greater cost controls from a growing Internet protocol (IP) operating environment.

In general, debt-to-EBITDA leverage and EBITDA-to-interest coverage levels should be stable in 2014 for the industry. While EBITDA is expected to grow in aggregate by mid-single digits, higher debt is offsetting any leverage improvements. Liquidity remains strong with a favorable near-term maturity schedule.

Fitch does have a developing concern related to an extremely friendly debt placement market, which may be weakening the incentive for companies to maintain higher credit ratings.

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