New-Gen broadband unlikely to have ratings impact on European telcos

The forthcoming network investments by European telecommunication operators into the so-called New Generation Networks (NGN) should not have any immediate impact on their ratings, says Moody's Investors Service in a new report published Thursday.
"A number of European investment grade incumbent telecommunications operators have recently announced, or are about to announce, network investments to roll out the NGNs," said Carlos Winzer, a Moody's Senior Vice-President and author of the report. "These are mainly investments in fibre optics to approach the client's premises and enhance the speed and capacity of existing networks to provide greater broadband services and improve future revenues."
Fibre optic investment can be done to the home or to the node, or a combination of the two. Alternatively, the investment can be restricted to the exiting copper line using an enhanced compression and decompression technology called DSL.
"In Moody's opinion, these investments in fibre optics will be made within the existing capex strategy and will be relatively small to start with. We expect they will be prudently funded to preserve the ratings and will represent a further use of free cash flow," Winzer continued.
"They are likely to take place over a 5 to 10 year time horizon and they will not represent a substantial change to our estimated capex/revenue benchmark ratio of about 15%."
The report explores in detail the various options that are available to the telcos. It finds that generally companies will not need to increase their debt and therefore will maintain financial ratios, meaning there should be no ratings impact.