AT&T's decision on rural lines won't affect its credit profile, says Fitch
Fitch Ratings on Monday issued a report that said that when AT&T (NYSE: T) makes its final decision on what to do with its rural wireline assets in November, it should not have an effect on the telco's credit profile.
Alternatively, Fitch said an "event risk" remains for the CenturyLink (NYSE: CTL), Frontier (Nasdaq: FTR), and Windstream (Nasdaq: WIN), all of which could be potential bidders on AT&T's lines because they fit their more rural-centric focus. The buying patterns of these service providers over the past three years have focused on acquiring rural assets from large carriers as they shift their focus towards wireless and serving more profitable Tier 1 urban and suburban areas.
Out of this trio, CenturyLink and Frontier have been the most aggressive on the M&A front, striking multibillion-dollar deals for Embarq, Qwest and Verizon's rural lines. Alternatively, Windstream has been doing a series of smaller and targeted deals to not only expand its rural service territory, but also its business service profile by purchasing PAETEC last year.
Initially, AT&T thought it would take 18-24 months to decide on what to do with its rural assets, but John Stephens, senior executive VP and CFO of AT&T, said during the Bank of America 2012 Media, Communications & Entertainment that they shortened that review process to 12-18 months.
At the same time, AT&T has been selling large pieces of noncore business units, including a major stake of its Yellow Pages business to Cerberus Capital Management for $950 million in April.
News of AT&T's move to possibly sell or restructure its rural wireline assets emerged after its failed attempt to purchase wireless provider T-Mobile USA. When that deal was announced, the service provider said it could solve its rural broadband problem with 4G LTE wireless service.
However, Randall Stephenson, AT&T's CEO, said in May that the advent of IP DSLAMs could be an option to solve the rural wireline broadband problem.
In its report, Fitch said that AT&T has seen the best results for its wireline services such as U-verse IPTV and data in the larger urban markets in its territory. Such a trend was evident in its Q2 earnings statement, where U-verse revenues rose 38 percent.
While it's true that CenturyLink, Frontier and Windstream have been very active on the M&A front, the reality is that they are all still in the process of integrating the service providers they have already bought.
Fitch said that AT&T could leverage a host of emerging next-gen broadband technologies, including IP DSLAMs, VDSL2 and vectoring technologies that would allow them to get more out of their existing copper to deliver higher broadband speeds in harder to reach rural areas.
- Reuters has this article
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