Citing changing wireline industry dynamics and lack of clarity regarding key regulatory and competitive issues for RBOCs, Standard & Poor's placed its long-term ratings for Verizon Communications on its CreditWatch list with negative implications. Verizon Network Funding Co. also was placed on CreditWatch with negative implications.
On 17-Feb-2004, S&P placed SBC Communications and BellSouth on CreditWatch with negative implications, following the announcement that Cingular had agreed to acquire AT&T Wireless. These companies remain on CreditWatch with negative implications due to the potential credit weakening associated with the debt that SBC and BellSouth (Cingular's respective 60% and 40% owners) will incur to fund the AT&T Wireless transaction ($41 billion in cash plus net debt assumption). In addition, Standard & Poor's said the CreditWatch listings for SBC and BellSouth now include the additional potential for a rating downgrade as a result of increased business risk for these companies' wireline businesses.
In a conference call and press statement, Standard & Poor's observed that while these RBOCs maintain solid business positions and dominant market shares in most of their wireline sectors, "it is clear that their business positions have weakened to some extent in recent years and are likely to continue to be under increasing competitive pressure." S&P said the main challenges to the RBOCs' historical core business are threefold:
- continued loss of access lines to wholesale lessors;
- wireless substitution; and
- cable telephony.
"Standard & Poor's recognizes that the three investment-grade RBOCs will continue to demonstrate many solid business and financial characteristics. Their business positions, though weaker than in the regulated monopoly days, are still solid. They have strong balance sheets and significant free cash flow, which enables potential deleveraging. Each has a major ownership position in a strong, nationwide wireless company."http://www.events.standardandpoors.com
