Fitch: Worst is over for EU telecoms operators

Fitch Ratings said the future looks a little brighter for telecoms and cable operators in the European Union as an improving regulatory environment and growing demand for high-speed data services look set to ease the pressure on the sector in 2015.

The global ratings agency has therefore been persuaded to lift the sector outlook from negative to stable, with a gradual improvement in margins and cashflows expected in 2015 following several years of weakening profitability.

Fitch observed that the outlook has improved due to some key developments this year, in particular decisions by the European Commission to allow Hutchison Whampoa to buy O2 Ireland and merge it with Three Ireland, and clearance for Telefónica Deutschland to buy E-Plus in Germany.

Moreover, the ratings agency believes policy generally is increasingly focused on encouraging growth as regulators look to incentivise incumbent operators to invest in network infrastructure.

"Financial profiles should also benefit from growing demand for both fixed and mobile high-speed broadband services," Fitch added. "Take-up of 4G services and fibre connections is reaching the mass market, while churn is also improving and average revenue per customer is increasing for high-end customers."

The sector continues to face some risks, however: Fitch noted that the new regulatory approach to consolidation means that debt-financed transactions could hurt operators' credit profiles. "However, the recent trend has been for buyers to use equity and equity-linked instruments to minimise the impact on their balance sheets," the rating agency added.

For more:
- see this Fitch Ratings statement (via Reuters)

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