Moody's Sees Slow but Steady Wireline Telco Decline, Absent Difficult Fiber Upgrades
Moody's predicted wireline telcos will suffer a "slow yet steady decline" due to various constraints, including "capital allocation practices that favor shareholder returns, lagging infrastructure relative to cable companies and high cost of capital." Telcos such as CenturyLink, Frontier Communications…
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and Windstream "all have high dividend yields that promote a cycle that steadily erodes each company's value and scale," Moody's said in a release Wednesday. "These telcos have strong operating cash flows and the ability to invest more, but they are hindered by market expectations for dividends," said Mark Stodden, a Moody's vice president-senior credit officer. "Their weak market position can only be changed by increased investment, but this would threaten dividends and is unpalatable to both equity investors and management teams." Moody's said there's a widening competitive gap between cable companies and telcos offering mostly DSL. "To compete with cable operators, DSL telcos would need to make significant investments in fiber-optic service, which they are generally unwilling to do," Moody's said, citing a report: "Wireline Telecommunications -- US - Boxed In: Wireline Telcos Face Continued, Painfully Slow Decline." Moody's added, "These factors will together force telcos to make credit-negative decisions pertaining to capital re-allocation that will slowly erode their competitive positions, and ultimately, their credit metrics."