TP backed as long-term play

Fitch Ratings is backing Telekomunikacja Polska as a safe long-term bet, maintaining its BBB+ status on the operator’s Issuer Default Rating (IDR) despite some concerns over short-term cash flow.
The ratings agency believes Poland’s incumbent telco has robust financials that have withstood fierce competition after it generated a free cash flow margin of 15.6% in 2010, which is higher than most comparative European operators.
However, Fitch notes the cash flow figure could fall over 2011 and 2012 as the operator invests in broadband and acquires 4G spectrum. The ratings agency is also edgy about the impact of a recent EU penalty over abuse of dominant position in the wholesale fixed broadband market “and the settlement of the DPTG dispute,” – a case covering fixed line fees.
The ratings firm believes Telekomunikacja Polska will cover any potential costs from the DPTG litigation in its 2011 results, and will offset part of the 508 million Polish Zloty (€126 million) fine from the EU with proceeds from the recent 1.7 billion Zloty sale of its TV and radio broadcasting division, Emitel.
Despite those pressures, Fitch predicts the telco is poised to benefit from a cost cutting campaign at its under-pressure fixed line business, a recent mobile network sharing deal with rival PTC, and “a more benign regulatory landscape.”