|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
Sensor-enabled things are becoming more commonplace, precursors to a larger and more complex framework that most consider the ultimate promise of the IoT: things connecting, interacting, sharing, storing, and over time perhaps learning and predicting based on habits, behaviors, location, preferences, purchases and more. In his session at @ThingsExpo, Tom Wesselman, Director of Communications Ecosystem Architecture at Plantronics, will examine the still nascent IoT as it is coalescing, including what it is today, what it might ultimately be, the role of wearable tech, and technology gaps stil...
Mar. 6, 2015 03:30 AM EST Reads: 2,823
Almost everyone sees the potential of Internet of Things but how can businesses truly unlock that potential. The key will be in the ability to discover business insight in the midst of an ocean of Big Data generated from billions of embedded devices via Systems of Discover. Businesses will also need to ensure that they can sustain that insight by leveraging the cloud for global reach, scale and elasticity.
Mar. 6, 2015 03:15 AM EST Reads: 4,703
The Internet of Things (IoT) promises to evolve the way the world does business; however, understanding how to apply it to your company can be a mystery. Most people struggle with understanding the potential business uses or tend to get caught up in the technology, resulting in solutions that fail to meet even minimum business goals. In his session at @ThingsExpo, Jesse Shiah, CEO / President / Co-Founder of AgilePoint Inc., showed what is needed to leverage the IoT to transform your business. He discussed opportunities and challenges ahead for the IoT from a market and technical point of vie...
Mar. 6, 2015 02:45 AM EST Reads: 4,067
IoT is still a vague buzzword for many people. In his session at @ThingsExpo, Mike Kavis, Vice President & Principal Cloud Architect at Cloud Technology Partners, discussed the business value of IoT that goes far beyond the general public's perception that IoT is all about wearables and home consumer services. He also discussed how IoT is perceived by investors and how venture capitalist access this space. Other topics discussed were barriers to success, what is new, what is old, and what the future may hold. Mike Kavis is Vice President & Principal Cloud Architect at Cloud Technology Pa...
Mar. 6, 2015 02:30 AM EST Reads: 4,694
Hadoop as a Service (as offered by handful of niche vendors now) is a cloud computing solution that makes medium and large-scale data processing accessible, easy, fast and inexpensive. In his session at Big Data Expo, Kumar Ramamurthy, Vice President and Chief Technologist, EIM & Big Data, at Virtusa, will discuss how this is achieved by eliminating the operational challenges of running Hadoop, so one can focus on business growth. The fragmented Hadoop distribution world and various PaaS solutions that provide a Hadoop flavor either make choices for customers very flexible in the name of opti...
Mar. 6, 2015 02:30 AM EST Reads: 1,326
The true value of the Internet of Things (IoT) lies not just in the data, but through the services that protect the data, perform the analysis and present findings in a usable way. With many IoT elements rooted in traditional IT components, Big Data and IoT isn’t just a play for enterprise. In fact, the IoT presents SMBs with the prospect of launching entirely new activities and exploring innovative areas. CompTIA research identifies several areas where IoT is expected to have the greatest impact.
Mar. 6, 2015 02:00 AM EST Reads: 3,171
The Internet of Things (IoT) is rapidly in the process of breaking from its heretofore relatively obscure enterprise applications (such as plant floor control and supply chain management) and going mainstream into the consumer space. More and more creative folks are interconnecting everyday products such as household items, mobile devices, appliances and cars, and unleashing new and imaginative scenarios. We are seeing a lot of excitement around applications in home automation, personal fitness, and in-car entertainment and this excitement will bleed into other areas. On the commercial side, m...
Mar. 6, 2015 01:30 AM EST Reads: 3,653
Advanced Persistent Threats (APTs) are increasing at an unprecedented rate. The threat landscape of today is drastically different than just a few years ago. Attacks are much more organized and sophisticated. They are harder to detect and even harder to anticipate. In the foreseeable future it's going to get a whole lot harder. Everything you know today will change. Keeping up with this changing landscape is already a daunting task. Your organization needs to use the latest tools, methods and expertise to guard against those threats. But will that be enough? In the foreseeable future attacks w...
Mar. 6, 2015 01:30 AM EST Reads: 3,797
Disruptive macro trends in technology are impacting and dramatically changing the "art of the possible" relative to supply chain management practices through the innovative use of IoT, cloud, machine learning and Big Data to enable connected ecosystems of engagement. Enterprise informatics can now move beyond point solutions that merely monitor the past and implement integrated enterprise fabrics that enable end-to-end supply chain visibility to improve customer service delivery and optimize supplier management. Learn about enterprise architecture strategies for designing connected systems tha...
Mar. 6, 2015 12:30 AM EST Reads: 3,724
Dale Kim is the Director of Industry Solutions at MapR. His background includes a variety of technical and management roles at information technology companies. While his experience includes work with relational databases, much of his career pertains to non-relational data in the areas of search, content management, and NoSQL, and includes senior roles in technical marketing, sales engineering, and support engineering. Dale holds an MBA from Santa Clara University, and a BA in Computer Science from the University of California, Berkeley.
Mar. 6, 2015 12:15 AM EST Reads: 3,901
Wearable devices have come of age. The primary applications of wearables so far have been "the Quantified Self" or the tracking of one's fitness and health status. We propose the evolution of wearables into social and emotional communication devices. Our BE(tm) sensor uses light to visualize the skin conductance response. Our sensors are very inexpensive and can be massively distributed to audiences or groups of any size, in order to gauge reactions to performances, video, or any kind of presentation. In her session at @ThingsExpo, Jocelyn Scheirer, CEO & Founder of Bionolux, will discuss ho...
Mar. 6, 2015 12:00 AM EST Reads: 3,163
The cloud is now a fact of life but generating recurring revenues that are driven by solutions and services on a consumption model have been hard to implement, until now. In their session at 16th Cloud Expo, Ermanno Bonifazi, CEO & Founder of Solgenia, and Ian Khan, Global Strategic Positioning & Brand Manager at Solgenia, will discuss how a top European telco has leveraged the innovative recurring revenue generating capability of the consumption cloud to enable a unique cloud monetization model to drive results.
Mar. 5, 2015 08:00 PM EST Reads: 1,963
As organizations shift toward IT-as-a-service models, the need for managing and protecting data residing across physical, virtual, and now cloud environments grows with it. CommVault can ensure protection &E-Discovery of your data – whether in a private cloud, a Service Provider delivered public cloud, or a hybrid cloud environment – across the heterogeneous enterprise. In his session at 16th Cloud Expo, Randy De Meno, Chief Technologist - Windows Products and Microsoft Partnerships, will discuss how to cut costs, scale easily, and unleash insight with CommVault Simpana software, the only si...
Mar. 5, 2015 07:00 PM EST Reads: 1,144
Docker is an excellent platform for organizations interested in running microservices. It offers portability and consistency between development and production environments, quick provisioning times, and a simple way to isolate services. In his session at DevOps Summit at 16th Cloud Expo, Shannon Williams, co-founder of Rancher Labs, will walk through these and other benefits of using Docker to run microservices, and provide an overview of RancherOS, a minimalist distribution of Linux designed expressly to run Docker. He will also discuss Rancher, an orchestration and service discovery platf...
Mar. 5, 2015 07:00 PM EST Reads: 935
Analytics is the foundation of smart data and now, with the ability to run Hadoop directly on smart storage systems like Cloudian HyperStore, enterprises will gain huge business advantages in terms of scalability, efficiency and cost savings as they move closer to realizing the potential of the Internet of Things. In his session at 16th Cloud Expo, Paul Turner, technology evangelist and CMO at Cloudian, Inc., will discuss the revolutionary notion that the storage world is transitioning from mere Big Data to smart data. He will argue that today’s hybrid cloud storage solutions, with commodity...
Mar. 5, 2015 06:00 PM EST Reads: 2,067
Cloud data governance was previously an avoided function when cloud deployments were relatively small. With the rapid adoption in public cloud – both rogue and sanctioned, it’s not uncommon to find regulated data dumped into public cloud and unprotected. This is why enterprises and cloud providers alike need to embrace a cloud data governance function and map policies, processes and technology controls accordingly. In her session at 15th Cloud Expo, Evelyn de Souza, Data Privacy and Compliance Strategy Leader at Cisco Systems, will focus on how to set up a cloud data governance program and s...
Mar. 5, 2015 04:15 PM EST Reads: 1,080
Roberto Medrano, Executive Vice President at SOA Software, had reached 30,000 page views on his home page - http://RobertoMedrano.SYS-CON.com/ - on the SYS-CON family of online magazines, which includes Cloud Computing Journal, Internet of Things Journal, Big Data Journal, and SOA World Magazine. He is a recognized executive in the information technology fields of SOA, internet security, governance, and compliance. He has extensive experience with both start-ups and large companies, having been involved at the beginning of four IT industries: EDA, Open Systems, Computer Security and now SOA.
Mar. 5, 2015 04:00 PM EST Reads: 1,573
Every innovation or invention was originally a daydream. You like to imagine a “what-if” scenario. And with all the attention being paid to the so-called Internet of Things (IoT) you don’t have to stretch the imagination too much to see how this may impact commercial and homeowners insurance. We’re beyond the point of accepting this as a leap of faith. The groundwork is laid. Now it’s just a matter of time. We can thank the inventors of smart thermostats for developing a practical business application that everyone can relate to. Gone are the salad days of smart home apps, the early chalkb...
Mar. 5, 2015 03:15 PM EST Reads: 763
The industrial software market has treated data with the mentality of “collect everything now, worry about how to use it later.” We now find ourselves buried in data, with the pervasive connectivity of the (Industrial) Internet of Things only piling on more numbers. There’s too much data and not enough information. In his session at @ThingsExpo, Bob Gates, Global Marketing Director, GE’s Intelligent Platforms business, to discuss how realizing the power of IoT, software developers are now focused on understanding how industrial data can create intelligence for industrial operations. Imagine ...
Mar. 5, 2015 03:15 PM EST Reads: 1,596
We certainly live in interesting technological times. And no more interesting than the current competing IoT standards for connectivity. Various standards bodies, approaches, and ecosystems are vying for mindshare and positioning for a competitive edge. It is clear that when the dust settles, we will have new protocols, evolved protocols, that will change the way we interact with devices and infrastructure. We will also have evolved web protocols, like HTTP/2, that will be changing the very core of our infrastructures. At the same time, we have old approaches made new again like micro-services...
Mar. 5, 2015 02:30 PM EST Reads: 3,225