|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 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 18th Cloud Expo, which will take place on June 7-9, 2015 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 ad...
Feb. 6, 2016 05:00 AM EST Reads: 312
Most people haven’t heard the word, “gamification,” even though they probably, and perhaps unwittingly, participate in it every day. Gamification is “the process of adding games or game-like elements to something (as a task) so as to encourage participation.” Further, gamification is about bringing game mechanics – rules, constructs, processes, and methods – into the real world in an effort to engage people. In his session at @ThingsExpo, Robert Endo, owner and engagement manager of Intrepid D...
Feb. 5, 2016 09:00 PM EST Reads: 753
With an estimated 50 billion devices connected to the Internet by 2020, several industries will begin to expand their capabilities for retaining end point data at the edge to better utilize the range of data types and sheer volume of M2M data generated by the Internet of Things. In his session at @ThingsExpo, Don DeLoach, CEO and President of Infobright, will discuss the infrastructures businesses will need to implement to handle this explosion of data by providing specific use cases for filte...
Feb. 5, 2016 03:00 PM EST
SYS-CON Events announced today that Fusion, a leading provider of cloud services, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Fusion, a leading provider of integrated cloud solutions to small, medium and large businesses, is the industry's single source for the cloud. Fusion's advanced, proprietary cloud service platform enables the integration of leading edge solutions in the cloud, including clou...
Feb. 5, 2016 02:30 PM EST Reads: 695
SYS-CON Events announced today that Commvault, a global leader in enterprise data protection and information management, has been named “Bronze Sponsor” of SYS-CON's 18th International Cloud Expo, which will take place on June 7–9, 2016, at the Javits Center in New York City, NY, and the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Commvault is a leading provider of data protection and information management...
Feb. 5, 2016 01:30 PM EST Reads: 329
SYS-CON Events announced today that Alert Logic, Inc., the leading provider of Security-as-a-Service solutions for the cloud, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Alert Logic, Inc., provides Security-as-a-Service for on-premises, cloud, and hybrid infrastructures, delivering deep security insight and continuous protection for customers at a lower cost than traditional security solutions. Ful...
Feb. 5, 2016 01:15 PM EST Reads: 321
The cloud promises new levels of agility and cost-savings for Big Data, data warehousing and analytics. But it’s challenging to understand all the options – from IaaS and PaaS to newer services like HaaS (Hadoop as a Service) and BDaaS (Big Data as a Service). In her session at @BigDataExpo at @ThingsExpo, Hannah Smalltree, a director at Cazena, will provide an educational overview of emerging “as-a-service” options for Big Data in the cloud. This is critical background for IT and data profes...
Feb. 5, 2016 12:00 PM EST
SYS-CON Events announced today that VAI, a leading ERP software provider, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. VAI (Vormittag Associates, Inc.) is a leading independent mid-market ERP software developer renowned for its flexible solutions and ability to automate critical business functions for the distribution, manufacturing, specialty retail and service sectors. An IBM Premier Business Part...
Feb. 5, 2016 12:00 PM EST Reads: 519
Fortunately, meaningful and tangible business cases for IoT are plentiful in a broad array of industries and vertical markets. These range from simple warranty cost reduction for capital intensive assets, to minimizing downtime for vital business tools, to creating feedback loops improving product design, to improving and enhancing enterprise customer experiences. All of these business cases, which will be briefly explored in this session, hinge on cost effectively extracting relevant data from ...
Feb. 5, 2016 10:15 AM EST
As enterprises work to take advantage of Big Data technologies, they frequently become distracted by product-level decisions. In most new Big Data builds this approach is completely counter-productive: it presupposes tools that may not be a fit for development teams, forces IT to take on the burden of evaluating and maintaining unfamiliar technology, and represents a major up-front expense. In his session at @BigDataExpo at @ThingsExpo, Andrew Warfield, CTO and Co-Founder of Coho Data, will dis...
Feb. 5, 2016 10:00 AM EST
With the Apple Watch making its way onto wrists all over the world, it’s only a matter of time before it becomes a staple in the workplace. In fact, Forrester reported that 68 percent of technology and business decision-makers characterize wearables as a top priority for 2015. Recognizing their business value early on, FinancialForce.com was the first to bring ERP to wearables, helping streamline communication across front and back office functions. In his session at @ThingsExpo, Kevin Roberts...
Feb. 5, 2016 09:30 AM EST Reads: 305
Eighty percent of a data scientist’s time is spent gathering and cleaning up data, and 80% of all data is unstructured and almost never analyzed. Cognitive computing, in combination with Big Data, is changing the equation by creating data reservoirs and using natural language processing to enable analysis of unstructured data sources. This is impacting every aspect of the analytics profession from how data is mined (and by whom) to how it is delivered. This is not some futuristic vision: it's ha...
Feb. 2, 2016 02:00 PM EST Reads: 394
WebRTC has had a real tough three or four years, and so have those working with it. Only a few short years ago, the development world were excited about WebRTC and proclaiming how awesome it was. You might have played with the technology a couple of years ago, only to find the extra infrastructure requirements were painful to implement and poorly documented. This probably left a bitter taste in your mouth, especially when things went wrong.
Feb. 2, 2016 04:30 AM EST Reads: 822
Learn how IoT, cloud, social networks and last but not least, humans, can be integrated into a seamless integration of cooperative organisms both cybernetic and biological. This has been enabled by recent advances in IoT device capabilities, messaging frameworks, presence and collaboration services, where devices can share information and make independent and human assisted decisions based upon social status from other entities. In his session at @ThingsExpo, Michael Heydt, founder of Seamless...
Feb. 1, 2016 05:00 AM EST Reads: 909
The IoT's basic concept of collecting data from as many sources possible to drive better decision making, create process innovation and realize additional revenue has been in use at large enterprises with deep pockets for decades. So what has changed? In his session at @ThingsExpo, Prasanna Sivaramakrishnan, Solutions Architect at Red Hat, discussed the impact commodity hardware, ubiquitous connectivity, and innovations in open source software are having on the connected universe of people, thi...
Jan. 31, 2016 09:00 PM EST Reads: 705
WebRTC: together these advances have created a perfect storm of technologies that are disrupting and transforming classic communications models and ecosystems. In his session at WebRTC Summit, Cary Bran, VP of Innovation and New Ventures at Plantronics and PLT Labs, provided an overview of this technological shift, including associated business and consumer communications impacts, and opportunities it may enable, complement or entirely transform.
Jan. 31, 2016 07:15 PM EST Reads: 1,125
There are so many tools and techniques for data analytics that even for a data scientist the choices, possible systems, and even the types of data can be daunting. In his session at @ThingsExpo, Chris Harrold, Global CTO for Big Data Solutions for EMC Corporation, showed how to perform a simple, but meaningful analysis of social sentiment data using freely available tools that take only minutes to download and install. Participants received the download information, scripts, and complete end-t...
Jan. 31, 2016 10:00 AM EST Reads: 1,186
For manufacturers, the Internet of Things (IoT) represents a jumping-off point for innovation, jobs, and revenue creation. But to adequately seize the opportunity, manufacturers must design devices that are interconnected, can continually sense their environment and process huge amounts of data. As a first step, manufacturers must embrace a new product development ecosystem in order to support these products.
Jan. 31, 2016 10:00 AM EST Reads: 781
Manufacturing connected IoT versions of traditional products requires more than multiple deep technology skills. It also requires a shift in mindset, to realize that connected, sensor-enabled “things” act more like services than what we usually think of as products. In his session at @ThingsExpo, David Friedman, CEO and co-founder of Ayla Networks, discussed how when sensors start generating detailed real-world data about products and how they’re being used, smart manufacturers can use the dat...
Jan. 30, 2016 07:45 PM EST Reads: 743
When it comes to IoT in the enterprise, namely the commercial building and hospitality markets, a benefit not getting the attention it deserves is energy efficiency, and IoT’s direct impact on a cleaner, greener environment when installed in smart buildings. Until now clean technology was offered piecemeal and led with point solutions that require significant systems integration to orchestrate and deploy. There didn't exist a 'top down' approach that can manage and monitor the way a Smart Buildi...
Jan. 30, 2016 03:45 PM EST Reads: 1,246