No Debt Concerns Following Termination Cost Cuts

Standard & Poor's Ratings Services said yesterday that its ratings and outlooks on global telecommunications operators Vodafone, Deutsche Telekom, Orange and mmO2 remain unchanged, following the English High Court's judgment to support a series of cuts in call termination charges, which the U.K. Competition Commission and Oftel originally enforced.

The 15% cut in termination rates, which form a material component of U.K. operators' service revenues, combined with three more similar cuts over the next three years, will lead to pressure on the operators' margins and cash generation. It is expected that these negative effects will be managed, however, through the control of costs, including reduced subscriber acquisition costs, and capital expenditure.

"The rulings underline the direct exposure of operators' revenues and business models to the regulatory environment in addition to competitors' actions," said Standard & Poor's credit analyst Simon Redmond. "With an already competitive U.K. market becoming more so with the entrance of new 3G entrant H3G Ltd., it is the weaker, less geographically diversified players, in particular mmO2, that continue to be most vulnerable."

Posted to the site on 3rd July 2003