|By Business Wire||
|November 21, 2012 12:53 PM EST||
Fitch Ratings has affirmed the 'BBB' Issuer Default Ratings (IDRs) and long-term debt ratings of Telephone and Data Systems, Inc. (TDS) and its subsidiary United States Cellular Corp. (USM). USM's ratings consider the consolidated ratings at Telephone and Data Systems, Inc. (TDS). The Rating Outlook on both entities is revised to Negative from Stable.
The affirmation reflects TDS' solid financial profile that has afforded the company some flexibility to withstand operating challenges at its current rating category. TDS has a good cash position, undrawn committed revolver lines, no material maturities in the next 20 years and a significant level of other assets that could be monetized.
The revision in Outlook reflects Fitch's longer-term concerns with the wireless operations. Postpaid subscriber additions at USM have been under material pressure for nearly three years. During 2012, the company reported postpaid net losses that are materially worse than Fitch expectations. USM has begun to improve traction with share gains and positive year-over-year postpaid gross addition trends during the past couple of quarters. However, churn has increased approximately 20 basis points as a result of the competitive intensity, lack of iPhone, and economic environment.
USM has taken steps to address these operational shortfalls with the divestiture of the Chicago and St. Louis markets, new branding campaign, targeted churn initiatives and broader third-party distribution. The sale of the wireless markets to Sprint Nextel will benefit the company's operating profile by improving profitability and cash flows, reducing capital spending, and improving past negative subscriber trends. As a result, the sale of these underperforming markets should provide better transparency with USM's operations in its remaining more mature markets where the company has achieved better penetration.
However, the sale of wireless assets also represents a retrenchment of its strategic plans and USM's inability to compete against the national operators despite being in the Chicago market for over 10 years. The competitive environment will also only get more challenging in the future. Verizon Wireless and AT&T Wireless have continued to strengthen their position against the rest of the industry through spectrum acquisitions and increased subscriber penetration to drive greater revenue and cash flow share. Verizon Wireless' early advantage with 4G LTE coverage and new share data plans has resulted in material share gains during 2012. T-Mobile and Sprint have also taken significant steps to improve their competitive positions longer term.
USM's increased distribution through Walmart should help further improve USM's gross addition trends as the company was more heavily reliant on distribution through company-owned stores versus its national peers. Fitch believes USM could pursue other initiatives to broaden its distribution mix although subscribers acquired through third-party channels are typically less profitable, with higher churn characteristics. Fitch also believes the lack of iPhone distribution creates a material competitive disadvantage relative to the national operators.
USM also has exposure longer term to declines from ETC revenues, which is a higher margin revenue source. USM had received in excess of $150 million of ETC revenue at its peak. Going forward, ETC revenue subsidies received by USM are subject to reform plans by the FCC, as payments are scheduled to be reduced 20% annually. These reductions began in mid-2012.
Longer term, Fitch believes TDS' ability to grow revenues and cash flows while competing effectively against much larger national operators is key to maintaining its investment grade ratings. Fitch acknowledges the steps the company has taken to improve its operating profile and profitability. However, Fitch remains concerned with the company's scale and competitive position. A failure by TDS to demonstrate the ability to sustain improved operating performance across its wireless and wireline segments would lead to a negative rating action.
TDS' has good financial flexibility because of its cash, committed credit lines and other assets. At the end of third-quarter 2012, TDS' consolidated cash balance was approximately $589 million. TDS also has $181 million of added liquidity in longer-dated treasury or treasury-backed securities. TDS and USM maintain approximately $700 million of undrawn revolver capacity, principally through TDS' $400 million revolving credit facility and USM's $300 million revolver, which both mature in December 2015. The principal covenant contained within the facility is a consolidated leverage ratio of 3.0x, which allows the company considerable flexibility.
Consolidated free cash flow (FCF) which had previously been at least $200 million the past three years was a deficit of $86 million for the last 12 months. This was due in part to capital spending that has peaked at over $1 billion as a result of USM's LTE expansion, growth related to wireline projects and the new wireless billing system. Looking forward, Fitch expects FCF levels in 2013 could be flat to moderately negative due to the continued high level of capital investment, decommissioning costs related to the Chicago/St. Louis markets and higher cash tax payments in 2013 as the benefit for bonus depreciation reverses. TDS will benefit by avoiding the significant capital investment that would have been required in the Chicago/St. Louis markets.
TDS does not have any significant maturities until after 2030. For the last 12 months, TDS' consolidated leverage of 1.4x and interest coverage of 11.0x were strong for its rating category, as ratings remain constrained by subscriber trends, competitive environment and lack of wireless scale.
TDS has other sizable assets that could be monetized, including USM's cellular towers and a 5.5% minority interest in Verizon Wireless' Los Angeles partnership, although a sale of the partnership interest could potentially affect the ratings depending on the use of the proceeds. The cash generation from these assets accounts for a material portion of its cash from operations at approximately 10%.
TDS has been active with share repurchase programs at both TDS and USM in the past. As of Sept. 30, 2012, TDS and USM had not repurchased any shares. TDS' current share repurchase program expired in November 2012. Fitch expects TDS' board will authorize a new share repurchase program. USM has authorized up to 1.3 million shares to be repurchased on an annual basis.
WHAT COULD TRIGGER A RATING ACTION
Negative: The ratings have a Negative Outlook. Future developments that may individually or collectively lead to a negative rating action include:
--A further erosion in the operating performance of the wireless segment due to negative postpaid subscriber trends associated with competitive pressure on churn or gross additions. Fitch must see an improved performance in gross addition and churn trends that can be sustained over this Outlook period as the company has taken initial steps to improve this deficiency.
--TDS must demonstrate progress toward improved profitability across the wireline and wireless operations that can be sustained for the longer term. A failure to accomplish this would be a further concern.
--Negative growth trends in Wireless revenue if ARPU growth slows and/or wireless net additions are negative thus further pressuring cash flows.
--Improvement in future FCF expectations beyond 2013.
--TDS undertakes more aggressive share repurchase activity, potentially from shareholder pressure, thus weakening its liquidity position.
Positive: Fitch believes that competitive factors, current subscriber trends and the company's relative position in the wireless industry would not likely allow for a positive rating action at this time.
Additional information is available at 'www.fitchratings.com'.The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Global Telecom Companies: Sector Credit Factors' (Aug. 9, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
SYS-CON Events announced today that IoT Now has been named “Media Sponsor” of SYS-CON's 20th International Cloud Expo, which will take place on June 6–8, 2017, at the Javits Center in New York City, NY. IoT Now explores the evolving opportunities and challenges facing CSPs, and it passes on some lessons learned from those who have taken the first steps in next-gen IoT services.
Mar. 26, 2017 03:30 AM EDT Reads: 3,835
SYS-CON Events announced today that Interoute, owner-operator of one of Europe's largest networks and a global cloud services platform, has been named “Bronze Sponsor” of SYS-CON's 20th Cloud Expo, which will take place on June 6-8, 2017 at the Javits Center in New York, New York. Interoute is the owner-operator of one of Europe's largest networks and a global cloud services platform which encompasses 12 data centers, 14 virtual data centers and 31 colocation centers, with connections to 195 add...
Mar. 26, 2017 03:15 AM EDT Reads: 1,023
SYS-CON Events announced today that MobiDev, a client-oriented software development company, will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place June 6-8, 2017, at the Javits Center in New York City, NY, and the 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. MobiDev is a software company that develops and delivers turn-key mobile apps, websites, web services, and complex softw...
Mar. 26, 2017 01:45 AM EDT Reads: 3,718
DevOps is often described as a combination of technology and culture. Without both, DevOps isn't complete. However, applying the culture to outdated technology is a recipe for disaster; as response times grow and connections between teams are delayed by technology, the culture will die. A Nutanix Enterprise Cloud has many benefits that provide the needed base for a true DevOps paradigm.
Mar. 26, 2017 12:30 AM EDT Reads: 1,894
What sort of WebRTC based applications can we expect to see over the next year and beyond? One way to predict development trends is to see what sorts of applications startups are building. In his session at @ThingsExpo, Arin Sime, founder of WebRTC.ventures, will discuss the current and likely future trends in WebRTC application development based on real requests for custom applications from real customers, as well as other public sources of information,
Mar. 26, 2017 12:15 AM EDT Reads: 751
As businesses adopt functionalities in cloud computing, it’s imperative that IT operations consistently ensure cloud systems work correctly – all of the time, and to their best capabilities. In his session at @BigDataExpo, Bernd Harzog, CEO and founder of OpsDataStore, will present an industry answer to the common question, “Are you running IT operations as efficiently and as cost effectively as you need to?” He will expound on the industry issues he frequently came up against as an analyst, and...
Mar. 26, 2017 12:00 AM EDT Reads: 4,132
Keeping pace with advancements in software delivery processes and tooling is taxing even for the most proficient organizations. Point tools, platforms, open source and the increasing adoption of private and public cloud services requires strong engineering rigor - all in the face of developer demands to use the tools of choice. As Agile has settled in as a mainstream practice, now DevOps has emerged as the next wave to improve software delivery speed and output. To make DevOps work, organization...
Mar. 26, 2017 12:00 AM EDT Reads: 1,737
My team embarked on building a data lake for our sales and marketing data to better understand customer journeys. This required building a hybrid data pipeline to connect our cloud CRM with the new Hadoop Data Lake. One challenge is that IT was not in a position to provide support until we proved value and marketing did not have the experience, so we embarked on the journey ourselves within the product marketing team for our line of business within Progress. In his session at @BigDataExpo, Sum...
Mar. 25, 2017 08:45 PM EDT Reads: 2,797
Apache Hadoop is emerging as a distributed platform for handling large and fast incoming streams of data. Predictive maintenance, supply chain optimization, and Internet-of-Things analysis are examples where Hadoop provides the scalable storage, processing, and analytics platform to gain meaningful insights from granular data that is typically only valuable from a large-scale, aggregate view. One architecture useful for capturing and analyzing streaming data is the Lambda Architecture, represent...
Mar. 25, 2017 08:45 PM EDT Reads: 6,020
Things are changing so quickly in IoT that it would take a wizard to predict which ecosystem will gain the most traction. In order for IoT to reach its potential, smart devices must be able to work together. Today, there are a slew of interoperability standards being promoted by big names to make this happen: HomeKit, Brillo and Alljoyn. In his session at @ThingsExpo, Adam Justice, vice president and general manager of Grid Connect, will review what happens when smart devices don’t work togethe...
Mar. 25, 2017 06:15 PM EDT Reads: 2,575
SYS-CON Events announced today that Ocean9will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Ocean9 provides cloud services for Backup, Disaster Recovery (DRaaS) and instant Innovation, and redefines enterprise infrastructure with its cloud native subscription offerings for mission critical SAP workloads.
Mar. 25, 2017 05:15 PM EDT Reads: 1,963
In his session at @ThingsExpo, Eric Lachapelle, CEO of the Professional Evaluation and Certification Board (PECB), will provide an overview of various initiatives to certifiy the security of connected devices and future trends in ensuring public trust of IoT. Eric Lachapelle is the Chief Executive Officer of the Professional Evaluation and Certification Board (PECB), an international certification body. His role is to help companies and individuals to achieve professional, accredited and worldw...
Mar. 25, 2017 04:00 PM EDT Reads: 557
SYS-CON Events announced today that Technologic Systems Inc., an embedded systems solutions company, will exhibit at SYS-CON's @ThingsExpo, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Technologic Systems is an embedded systems company with headquarters in Fountain Hills, Arizona. They have been in business for 32 years, helping more than 8,000 OEM customers and building over a hundred COTS products that have never been discontinued. Technologic Systems’ pr...
Mar. 25, 2017 01:45 PM EDT Reads: 3,314
SYS-CON Events announced today that CA Technologies has been named “Platinum Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY, and the 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. CA Technologies helps customers succeed in a future where every business – from apparel to energy – is being rewritten by software. From ...
Mar. 25, 2017 01:30 PM EDT Reads: 1,751
The taxi industry never saw Uber coming. Startups are a threat to incumbents like never before, and a major enabler for startups is that they are instantly “cloud ready.” If innovation moves at the pace of IT, then your company is in trouble. Why? Because your data center will not keep up with frenetic pace AWS, Microsoft and Google are rolling out new capabilities In his session at 20th Cloud Expo, Don Browning, VP of Cloud Architecture at Turner, will posit that disruption is inevitable for c...
Mar. 25, 2017 01:15 PM EDT Reads: 2,058
SYS-CON Events announced today that Cloudistics, an on-premises cloud computing company, has been named “Bronze Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Cloudistics delivers a complete public cloud experience with composable on-premises infrastructures to medium and large enterprises. Its software-defined technology natively converges network, storage, compute, virtualization, and management into a ...
Mar. 25, 2017 12:45 PM EDT Reads: 1,910
SYS-CON Events announced today that Loom Systems will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Founded in 2015, Loom Systems delivers an advanced AI solution to predict and prevent problems in the digital business. Loom stands alone in the industry as an AI analysis platform requiring no prior math knowledge from operators, leveraging the existing staff to succeed in the digital era. With offices in S...
Mar. 25, 2017 12:30 PM EDT Reads: 1,207
The explosion of new web/cloud/IoT-based applications and the data they generate are transforming our world right before our eyes. In this rush to adopt these new technologies, organizations are often ignoring fundamental questions concerning who owns the data and failing to ask for permission to conduct invasive surveillance of their customers. Organizations that are not transparent about how their systems gather data telemetry without offering shared data ownership risk product rejection, regu...
Mar. 25, 2017 12:30 PM EDT Reads: 5,072
SYS-CON Events announced today that CrowdReviews.com has been named “Media Sponsor” of SYS-CON's 20th International Cloud Expo, which will take place on June 6–8, 2017, at the Javits Center in New York City, NY. CrowdReviews.com is a transparent online platform for determining which products and services are the best based on the opinion of the crowd. The crowd consists of Internet users that have experienced products and services first-hand and have an interest in letting other potential buyers...
Mar. 25, 2017 11:00 AM EDT Reads: 3,571
SYS-CON Events announced today that T-Mobile will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. As America's Un-carrier, T-Mobile US, Inc., is redefining the way consumers and businesses buy wireless services through leading product and service innovation. The Company's advanced nationwide 4G LTE network delivers outstanding wireless experiences to 67.4 million customers who are unwilling to compromise on ...
Mar. 25, 2017 10:45 AM EDT Reads: 2,123