S&P downgrades Telstra's credit rating outlook

Investment analysts Standard & Poor's has downgraded Telstra's credit rating outlook to negative from stable, stating the government's NBN plans raise major questions about the future of the company.

"The announcements raise significant uncertainties regarding Telstra's longer-term position in the provision of local fixed-line telecommunications infrastructure in Australia, and also the future structure and composition of Telstra," said S&P credit analyst Paul Draffin.

The Australian government last week announced it had rejected  every bid to build its National Broadband Network project.

The government will instead create a new company, which will be majority-owned by the government but draw investments from the private sector, to build the network.

The NBN has the potential to dethrone Telstra from its dominance in Australia's telecom market, S&P said. If the project proceeds as planned, the service will bypass Telstra's existing copper network. "Telstra's control of the 'last mile' of copper previously was considered an important source of value retention for Telstra," Draffin said.

Telstra, Optus and other ISPs are also considering gifting their fiber networks to the government in exchange for a stake in the company. And Telstra has already indicated it is considering  voluntary separation.

"Importantly for credit quality, however, functional separation alone would not necessarily result in a lower long-term rating, assuming the group's solid financial profile remains intact," S&P said.

Despite the risks, S&P has affirmed Telstra's current A/A-1 corporate credit rating, and said the impact of the NBN on this rating is not likely to exceed one notch.

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