NEW YORK-Rapid technological innovations, a changing regulatory environment and intensifying competition have altered the credit profile of telecommunications companies and signaled still more changes into the next century, Standard & Poor’s Corp. said in a recent industry outlook report.
Debt ratings have shifted toward a nearly even split between investment and speculative grade in this decade so far. By contrast, during the 1980s, the telecommunications industry was dominated by investment grade, AA-rated companies.
“Some of the overall credit deregulation can be attributed to competition’s effect on the companies that have operated since 1987, but most of the shift traces to the entrance of new companies,” said Richard Siderman, managing director.
“For the most part, these new entrants are far more entrepreneurial and generally much riskier since there is diminished benefit from regulatory protection. Instead of meeting regulatory demands, these companies have to comply with the more fickle demands of the marketplace.”
The wireless telecommunications sector continues to develop and consistently exceeds analysts’ expectations and projections.
“The strong fundamentals are expected to continue as the industry is expected to surpass 100 million subscribers sometime in 2002, potentially sooner,” said Timothy E. Caffrey, director.
However, he also noted that, while revenue forecasts are relatively conservative for this telecommunications segment, debt ratings overall are comparatively weak. Analysts also have pointed out that the total wireless industry is expected to expand, but at a slightly decreasing rate compared with its growth in prior years.
New satellite ventures, particularly low-earth-orbiting satellites, face a series of hurdles. In addition to finding financing, new satellite providers are challenged by market demand, technological issues, launch risks, regulatory approval considerations and competition.
“The keys for success for the new satellite systems will include being first to market and (gaining) consumer acceptance,” said Rosemarie Kalinowski, analyst.
As for the convergence of cable TV and telephony markets, analysts do not expect to see the integration of these networks for at least the next several years and, in some cases, not at all.
“There is a relative lack of profitability because of high capital expenditures and technological difficulties [inherent in conversion of] existing cable systems to two-way telephony,” said Catherine Cosentino, analyst.
Furthermore, telephone networks will not provide integrated consumer services until such networks can be cost-justified on a wide scale, she said.
The wireline phone business will continue to be an engine of growth and dynamic change in the domestic economy. However, its future credit strength is tied to the outcomes in an uncertain regulatory environment and a period of heightened merger-and-acquisition activity.
