Investment-grade telcos in Europe are still heading in the right direction, according to latest research from Standard & Poor's.
Efforts to achieve optimal operating and capital efficiency, along with the adoption of conservative financial policies, have been rewarded by improved creditworthiness during the first half of 2003.
S&P singled out France Télécom, Deutsche Telekom and KPN as having made the most progress, although both BT and Vodafone turned in strong figures for the financial year to March 31, 2003.
"Importantly, operators are now applying increased free cash flow to effect balance-sheet repairs," said Peter Kernan, credit analyst and head of the European telecoms group at Standard & Poor's Corporate Ratings Europe. "This follows management changes and the adoption of more conservative financial policies at many European investment-grade operators over the past two years. As a result, operators are now focused on improving operating performance, growing free operating cash flow, and using this cash flow to lower net debt and increase liquidity."
Four factors stand behind the improvement in credit quality: strong ratings support from fixed-line operations for former incumbents; increasing maturity of second-generation mobile telephony across Europe; delays in the rollout of 3G networks, which have lowered the risk on mobile operations significantly; and the enduring strength of cash flow from fixed-line business, allied with the rapid growth of cash flow from mobile operations.