Orange hit by Moody's downgrade over competition concerns

Moody's has downgraded Orange's credit rating to Baa1 from A3, indicating that France's bitter price war is continuing to have a dire effect on the country's mobile operators.

The credit rating agency said the downgrade affected the long-term issuer and senior unsecured ratings of all debt issued by Orange and was a result of intensifying competition in the mobile market. What's more, Moody's also offered little hope of a rapid improvement in the situation:

"We expect that Orange's financial ratios will remain weak for 2013 and 2014 with no prospects of recovery in the short term to levels commensurate with the previous A3 rating category," said Carlos Winzer, a Moody's senior vice president and lead analyst for Orange, in a statement.

Winzer noted that Orange's management has implemented a number of actions including accelerated cost cutting and the sale of non-strategic assets.

"However, we expect further revenue declines this year of close to mid-single-digit percentage points, which will negatively affect cash flow," he commented. "We anticipate that this will increase the group's financial risk beyond the level of tolerance for the previous rating category."

Orange competes with Vivendi-owned SFR, Bouygues Telecom and Iliad's Free Mobile on the French mobile market and like its rivals has been hit by the low-cost strategy first launched in 2012 by Free Mobile.

The aggressive strategy pursued by Iliad founder Xavier Niel has also seen Free Mobile extend its low-cost strategy to LTE tariffs in recent weeks, when it added LTE to its €19.99/€15.99 and €2 mobile plans.

That move has already forced Orange, SFR and Bouygues Telecom to add LTE to their low-cost tariffs and brands. SFR was the last to do so this week, adding LTE to its low-cost RED plans for €25.99 ($35.50) a month with unlimited access to YouTube and 5 GB of data.

At the same time, operators throughout Europe have been under pressure from regulatory changes that have hit roaming and other revenue, while the underlying economy remains weak in many markets.

The French government has been highly critical of Free Mobile's move with LTE and warned that Iliad's claims to offer LTE speeds despite the lack of coverage risked confusing consumers and damaging the image of the new technology.

Meanwhile Orange, SFR and Bouygues Telecom all confirmed that reached 1 million LTE subscribers by the end of 2013.

For more:
- see this Moody's release

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