Moody's: Wireline revenue will continue to decline, but TV, broadband will offset trend

Wireline revenue will continue to decline by 1 percent in 2014 and 2015, according to credit rating firm Moody's. However, the rate of decline should improve as telcos like AT&T (NYSE: T) and Verizon (NYSE: VZ) see growth in residential TV and broadband services.

"The introduction of new bundled-product offerings (phone, TV, Internet) could also help wireline carriers generate more revenue that blurs the distinction between wireline and wireless," the firm said.

Two of the biggest factors in the U.S. wireline industry will be the capital movements by AT&T and Verizon.

The firm said it expects wireline industry margin to remain under pressure as AT&T may need to increase "spending on regulatory commitments related to its proposed acquisition of DirecTV," such as expanding fiber to 2 million homes.

At the same time, Moody's expects that wireline capital spending will decline by nearly 10 percent while increasing near-term cash flow. Overall wireline capital spending will decline by nearly 10 percent with AT&T's reduced capex budget and Verizon's completion of its FiOS footprint growth.

In November, AT&T revealed that its 2015 capex budget will be $18 billion, down from $21 billion in 2014 and down from an earlier forecast of $20 billion.

AT&T's move is already having an effect on members of the optical equipment industry, like Ciena, which saw its shares dip after the telco announced its capital plan. A separate report conducted by Dell'Oro revealed that "the optical market took a sudden and negative turn as major tier-one North American service providers reduced deployments and cut spending on transport equipment." 

Another near-term danger of lower spending on wireline infrastructure for all telcos with the exception of Verizon, particularly for broadband equipment, could leave them vulnerable to losing ground to cable operators, which can provide higher speed services over their existing HFC network infrastructure in markets where telcos only provide lower speed DSL.

Moody's said that "underinvestment into broadband by all industry players (except Verizon) may eventually lead to market share losses to cable competitors which can generally offer higher speed broadband."

Related articles:
Moody's: U.S. wireless industry revenues to grow 3% to 4% in 2015
Verizon's enterprise weakness is offset by FiOS revenue strength in Q3
AT&T's U-verse gains help to ease legacy losses in Q3

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