Tuesday, July 23, 2013

Growth, not Liquidity is Issue for U.S. Telcos, Cable

A review of U.S. cable and telco firms suggests liquidity is not a problem for most, according to Fitch Ratings. But mature markets, limited opportunities for revenue growth and heightened competition are issues.

In the first quarter of 2013, liquidity in both telecom and cable TV segments overall remained strong, with 89 percent of committed facilities available for borrowing and total liquidity exceeding aggregate 2013, 2014 and 2015 maturities, Fitch Ratings said.

In other words, most of the firms have sufficient cash to operate their businesses. But the report also points out the key concerns contestants face.  

For AT&T, the concerns are competitive pressures, particularly associated with switched access lines. Also, the weak economy is affecting business revenues. AT&T also faces long-term spectrum requirements, which will cause it to spend money to catch up. Meanwhile, AT&T also is stepping up its spending on share repurchases.

At Comcast, limited revenue growth opportunities outside of its core triple-play service offering and its aggressive policy of returning capital to shareholders are seen as issues.

At DirecTV, an aggressive policy of returning capital to shareholders and lack of revenue diversity, plus a narrow product offering are issues. As with the cable providers, a mature U.S. video entertainment business also is an issue.

Time Warner Cable faces a weak economy and competitive pressure negatively affecting its free cash flow margin, subscriber growth and revenue. Financial leverage is another issue.

For CenturyLink, the issue is limited ability to drive new revenue growth.

At Charter Communications, elevated financial leverage is an issue, especially if Charter succeeds with its plans to grow by acquisition. Also, Charter has relatively weaker service penetration than most of its peers. Competition is an issue, as it new revenue growth outside of its core triple-play offerings.

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