Sunday, December 20, 2009

USA - Fitch sees stiff competition & economic challenges for telecom & cable operators in 2010

[business wire] Fitch Ratings expects that many of the competitive and economic pressures of 2009 will remain for U.S. telecommunications and cable operators in 2010. Competitive overlap of services is ever-growing for this sector and will continue to materially impact company's near-term results and long-term prospects. Economic challenges for the sector, particularly related to unemployment and housing-starts are expected to continue well into 2010, also pressuring results. Traditionally, U.S. telecommunications and cable service demand has lagged economic recoveries. Fitch expects this lagging trend to continue and any U.S. economic improvement in 2010 will likely not be reflected in telecommunications and cable results until 2011. Therefore, Fitch expects that the difficult operating environment that companies experienced in 2009 will continue through 2010.

"Although the telecom and cable industry has maintained strong liquidity and free cash flow, macroeconomic woes including unemployment rates and a struggling housing market will continue to limit financial growth for the sector," said Michael Weaver, Managing Director at Fitch.

Wireline Prospects Fitch estimates that aggregate access line losses for 2009 will be approximately 10.5% for the telecommunications sector. Pressure from wireless substitution and weak housing starts continue to be key influences that will remain in 2010. A lessening impact of cable digital telephony erosion of residential access lines was offset by a material increase in business access line losses in 2009. Business and residential access line losses should stabilize in 2010 and continue in the range of 3-3.2 million per quarter, which would represent a yearly loss of approximately 12% with the percentage increase reflecting the declining overall base. The on-going loss of legacy revenue increases the importance of other sources of wireline growth for telecommunications operators, such as high-speed data (HSD), network-based video and business/commercial services. Fitch estimates that HSD subscriber growth slowed in 2009 to 1.7 million net subscriber additions. Likewise, Fitch forecasts that total HSD net subscriber additions will slow in 2010 to approximately 1.4 million. The slowing growth of the HSD market is reflective of higher penetration of these services and to a lesser extent a growing substitution by wireless data. With regard to network-based video, Fitch estimates that offerings by AT&T, Inc. and Verizon Communications Inc. will grow by 2 million subscribers in 2009, but this rate will likely slow in 2010 to approximately 1.5 million. The slowing growth rate reflects increasing penetration and a slowing of coverage growth as these operators enter their final phase of deployment. Finally, business/commercial service revenue erosion peaked in first-quarter 2009 (1Q'09) and Fitch expects the total 2009 decline to be over 6% for wireline companies with this trend the result of growing unemployment. It is likely that the unemployment rate is near its high so Fitch believes that reductions in business/commercial revenues should be modest, in the range of 1%, in 2010. In total, Fitch estimates that aggregate wireline revenues will decline in 2010 near the mid-single-digit range, a modest improvement over 2009. Operators with a larger growth services revenue mix should experience revenue erosion in the low single-digit range. EBITDA will similarly fall in aggregate by a low- to mid-single-digit range for the industry as benefits from headcount reductions offset losses of high-margin legacy services.

Fitch: Stiff Competition & Economic Challenges Will Pressure Telecom & Cable Operators in 2010

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