|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
Almost two-thirds of companies either have or soon will have IoT as the backbone of their business in 2016. However, IoT is far more complex than most firms expected. How can you not get trapped in the pitfalls? In his session at @ThingsExpo, Tony Shan, a renowned visionary and thought leader, will introduce a holistic method of IoTification, which is the process of IoTifying the existing technology and business models to adopt and leverage IoT. He will drill down to the components in this fra...
Sep. 25, 2016 03:00 AM EDT Reads: 1,373
There is growing need for data-driven applications and the need for digital platforms to build these apps. In his session at 19th Cloud Expo, Muddu Sudhakar, VP and GM of Security & IoT at Splunk, will cover different PaaS solutions and Big Data platforms that are available to build applications. In addition, AI and machine learning are creating new requirements that developers need in the building of next-gen apps. The next-generation digital platforms have some of the past platform needs a...
Sep. 25, 2016 02:45 AM EDT Reads: 1,677
I'm a lonely sensor. I spend all day telling the world how I'm feeling, but none of the other sensors seem to care. I want to be connected. I want to build relationships with other sensors to be more useful for my human. I want my human to understand that when my friends next door are too hot for a while, I'll soon be flaming. And when all my friends go outside without me, I may be left behind. Don't just log my data; use the relationship graph. In his session at @ThingsExpo, Ryan Boyd, Engi...
Sep. 25, 2016 02:15 AM EDT Reads: 1,201
SYS-CON Events announced today that Numerex Corp, a leading provider of managed enterprise solutions enabling the Internet of Things (IoT), will exhibit at the 19th International Cloud Expo | @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Numerex Corp. (NASDAQ:NMRX) is a leading provider of managed enterprise solutions enabling the Internet of Things (IoT). The Company's solutions produce new revenue streams or create operating...
Sep. 25, 2016 12:45 AM EDT Reads: 1,927
Information technology is an industry that has always experienced change, and the dramatic change sweeping across the industry today could not be truthfully described as the first time we've seen such widespread change impacting customer investments. However, the rate of the change, and the potential outcomes from today's digital transformation has the distinct potential to separate the industry into two camps: Organizations that see the change coming, embrace it, and successful leverage it; and...
Sep. 25, 2016 12:45 AM EDT Reads: 1,029
Data is an unusual currency; it is not restricted by the same transactional limitations as money or people. In fact, the more that you leverage your data across multiple business use cases, the more valuable it becomes to the organization. And the same can be said about the organization’s analytics. In his session at 19th Cloud Expo, Bill Schmarzo, CTO for the Big Data Practice at EMC, will introduce a methodology for capturing, enriching and sharing data (and analytics) across the organizati...
Sep. 24, 2016 09:45 PM EDT Reads: 1,603
DevOps at Cloud Expo, taking place Nov 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 19th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long dev...
Sep. 24, 2016 09:30 PM EDT Reads: 3,320
The vision of a connected smart home is becoming reality with the application of integrated wireless technologies in devices and appliances. The use of standardized and TCP/IP networked wireless technologies in line-powered and battery operated sensors and controls has led to the adoption of radios in the 2.4GHz band, including Wi-Fi, BT/BLE and 802.15.4 applied ZigBee and Thread. This is driving the need for robust wireless coexistence for multiple radios to ensure throughput performance and th...
Sep. 24, 2016 08:30 PM EDT Reads: 1,442
The Internet of Things can drive efficiency for airlines and airports. In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect with GE, and Sudip Majumder, senior director of development at Oracle, will discuss the technical details of the connected airline baggage and related social media solutions. These IoT applications will enhance travelers' journey experience and drive efficiency for the airlines and the airports. The session will include a working demo and a technical d...
Sep. 24, 2016 08:00 PM EDT Reads: 1,649
SYS-CON Events announced today the Enterprise IoT Bootcamp, being held November 1-2, 2016, in conjunction with 19th Cloud Expo | @ThingsExpo at the Santa Clara Convention Center in Santa Clara, CA. Combined with real-world scenarios and use cases, the Enterprise IoT Bootcamp is not just based on presentations but with hands-on demos and detailed walkthroughs. We will introduce you to a variety of real world use cases prototyped using Arduino, Raspberry Pi, BeagleBone, Spark, and Intel Edison. Y...
Sep. 24, 2016 07:00 PM EDT Reads: 2,792
Fact is, enterprises have significant legacy voice infrastructure that’s costly to replace with pure IP solutions. How can we bring this analog infrastructure into our shiny new cloud applications? There are proven methods to bind both legacy voice applications and traditional PSTN audio into cloud-based applications and services at a carrier scale. Some of the most successful implementations leverage WebRTC, WebSockets, SIP and other open source technologies. In his session at @ThingsExpo, Da...
Sep. 24, 2016 06:45 PM EDT Reads: 1,482
If you’re responsible for an application that depends on the data or functionality of various IoT endpoints – either sensors or devices – your brand reputation depends on the security, reliability, and compliance of its many integrated parts. If your application fails to deliver the expected business results, your customers and partners won't care if that failure stems from the code you developed or from a component that you integrated. What can you do to ensure that the endpoints work as expect...
Sep. 24, 2016 04:30 PM EDT Reads: 1,512
SYS-CON Events announced today that China Unicom will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. China United Network Communications Group Co. Ltd ("China Unicom") was officially established in 2009 on the basis of the merger of former China Netcom and former China Unicom. China Unicom mainly operates a full range of telecommunications services including mobile broadband (GSM, WCDMA, LTE F...
Sep. 24, 2016 01:30 PM EDT Reads: 1,677
Enterprise IT has been in the era of Hybrid Cloud for some time now. But it seems most conversations about Hybrid are focused on integrating AWS, Microsoft Azure, or Google ECM into existing on-premises systems. Where is all the Private Cloud? What do technology providers need to do to make their offerings more compelling? How should enterprise IT executives and buyers define their focus, needs, and roadmap, and communicate that clearly to the providers?
Sep. 24, 2016 01:00 PM EDT Reads: 1,487
The Transparent Cloud-computing Consortium (abbreviation: T-Cloud Consortium) will conduct research activities into changes in the computing model as a result of collaboration between "device" and "cloud" and the creation of new value and markets through organic data processing High speed and high quality networks, and dramatic improvements in computer processing capabilities, have greatly changed the nature of applications and made the storing and processing of data on the network commonplace.
Sep. 24, 2016 12:00 PM EDT Reads: 768
SYS-CON Events announced today that SoftLayer, an IBM Company, has been named “Gold Sponsor” of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2016, at the Javits Center in New York, New York. SoftLayer, an IBM Company, provides cloud infrastructure as a service from a growing number of data centers and network points of presence around the world. SoftLayer’s customers range from Web startups to global enterprises.
Sep. 24, 2016 12:00 PM EDT Reads: 773
Digital innovation is the next big wave of business transformation based on digital technologies of which IoT and Big Data are key components, For example: Business boundary innovation is a challenge to excavate third-party business value using IoT and BigData, like Nest Business structure innovation may propose re-building business structure from scratch, as Uber does in the taxicab industry The social model innovation is also a big challenge to the new social architecture with the design fr...
Sep. 24, 2016 11:45 AM EDT Reads: 1,042
SYS-CON Events announced today that Pulzze Systems will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Pulzze Systems, Inc. provides infrastructure products for the Internet of Things to enable any connected device and system to carry out matched operations without programming. For more information, visit http://www.pulzzesystems.com.
Sep. 24, 2016 10:45 AM EDT Reads: 1,724
IoT is fundamentally transforming the auto industry, turning the vehicle into a hub for connected services, including safety, infotainment and usage-based insurance. Auto manufacturers – and businesses across all verticals – have built an entire ecosystem around the Connected Car, creating new customer touch points and revenue streams. In his session at @ThingsExpo, Macario Namie, Head of IoT Strategy at Cisco Jasper, will share real-world examples of how IoT transforms the car from a static p...
Sep. 24, 2016 10:30 AM EDT Reads: 1,479
Big Data has been changing the world. IoT fuels the further transformation recently. How are Big Data and IoT related? In his session at @BigDataExpo, Tony Shan, a renowned visionary and thought leader, will explore the interplay of Big Data and IoT. He will anatomize Big Data and IoT separately in terms of what, which, why, where, when, who, how and how much. He will then analyze the relationship between IoT and Big Data, specifically the drilldown of how the 4Vs of Big Data (Volume, Variety,...
Sep. 24, 2016 10:00 AM EDT Reads: 917