Moody’s Credit Rating Agency still Luke Warm on Telecom Player Prospects

You can tell a lot about the prospects of an industry by how its players are rated by the credit rating agencies such as Moody’s, Standard & Poors and Fitch. The latest from Moody’s suggests that tight rules imposed by the European Commission on telecoms mergers could have a negative impact on operators’ bottom line throughout the region. Approval of Hutchison Whampoa's acquisition of O2 Ireland, for example, has been accompanied by a host of conditions, such as the sale of network capacity to MVNOs, to allay fears of higher pricing through fewer players. Telefónica Deutschland’s acquisition of E-Plus from KPN, may well be subject to similar conditions. The winners are likely to be any player that operates in a parallel market to the mobile market, such as fixed-line operators and cable players- since they stand to win the most from the resulting MVNO licences. For six months or so Moody’s has not been overly upbeat on European telecoms. Back in November 2013, Moody’s announced that the European telecommunications sector would remain on negative outlook due to the slow pace and uncertain sustainability of the revenue recovery. "While we expect revenues to stabilize or marginally decline by 0% to -0.5% in 2014, it is not clear how sustainable any recovery will be," said Carlos Winzer, Moody’s dyed in the wool Telecommunications Analyst. "We have had a negative outlook on the sector since November 2011,” he said in a release at the time. The reasons are various and to some extent represent the challenges facing all operators: prices in some of the most competitive markets will continue to drop as incumbents fight to keep market share, particularly if the economy is keeping buyers of their services price sensitive. Integrated incumbent operators such as Deutsche Telekom, Orange, KPN, Telefonica and Portugal Telecom will fare better than companies with just mobile or fixed service propositions because they can offer bundled voice and data services, suggests Moody’s. See our latest research on mobile voice and M2M services here.