Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

Telecom rating will face pressure: Fitch

Telecom's chief finance officer Nick Olson. Photo / Supplied
Telecom's chief finance officer Nick Olson. Photo / Supplied

Telecom's credit rating will continue to face pressure in 2012, says Fitch, the agency which cut the company's credit profile at the end of last month.

Fitch downgraded Telecom's credit profile on October 31 from A- to BBB+, saying the phone and internet provider would face increased competition when it splits with its network arm, Chorus. Telecom is due to separate with Chorus on November 30.

Following the demerger, Chorus will become a separate public company to roll out the majority of fibre cables in the Government's ultra-fast broad scheme.

The new Chorus business will own 130,000km of copper lines, 27,000km of fibre lines and more than 500 telephone exchanges.

Yesterday, Fitch released its outlook for the telecommunications industry over the next 12 months and said the credit profiles of incumbent telcos on both sides of the Tasman would remain under pressure.

These profiles traditionally affect the interest rates a company pays when it borrows money.

In response to the outlook, Telecom fired back the same statement it made when Fitch cut its rating last month.

Telecom said it formally engages both Standard & Poor's and Moody's in relation to rating agency services and Fitch formed its view on an "unsolicited basis", without engaging with the company.

"Rating without request is of questionable value in a transaction of the complexity of the demerger," said Telecom's chief finance officer Nick Olson,

"Investors should look to the informed views of S&P and Moody's as the most reliable view of debt ratings for New Telecom," Olson said.

S&P lowered Telecom's long-term credit rating to A- from A on Monday.

The ratings company first flagged the likely cut in August.

According to Telecom, Moody's would likely assign it a preliminary credit rating of A3/Stable if the split goes ahead.

Yesterday, Fitch said the demerger may "lead to a step-change increase in competition" in the local market.

"[Telecom] will be required to compete with other telcos - such as TelstraClear - that will continue to be allowed to own their own fibre and copper access networks.

"This will be a challenge for [Telecom], and levels the playing field to make the New Zealand market more attractive for new entrants," the outlook said.

But in regards to new entrants, IDC analyst Rosalie Nelson said New Zealand was a "very small market" and questioned some of Fitch's assumptions.

"At the moment we've got only a few players with any kind of scale and, yes, while in principle you might be able to argue there might be an increase in service providers based on an open-access network ... new entrants coming into the telecommunications market given the flat revenue growth profile is somewhat challenging," Nelson said.

- NZ Herald

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