Despite Mega-Mergers, Credit Ratings Outlook for Telecom, Cable Industries Remains Stable

**Editor’s Note: Please click here for a recap of the biggest communications mergers in Q2 2014.**

Standard & Poor’s Ratings Service says the outlook for the U.S. cable and telecom industries remains mostly stable in spite of a number of high-profile mergers including the pending acquisition of Time Warner Cable by Comcast.

“We expect a limited number of upgrades and downgrades during the second half of 2014, which is reflected in the fact that about 80 percent of the companies we rate have stable outlooks,” wrote Richard C. Siderman, an S&P credit analyst, in an Aug. 7 report.

Prospects are more favorable in the wireless and pay television sectors than in the wireline phone industry, said Siderman. S&P forecasts the landline phone sector will continue to lose access lines, mostly due to residential subscribers relying on wireless.

The U.S. wireless market is saturated. Siderman said S&P anticipates wireless revenues will rise a modest 2 percent this year.

“We anticipate only modest wireless industry growth as providers in this maturing industry react to T-Mobile’s very aggressive pricing strategy,” he wrote.

Meanwhile, the pay television sector is rapidly consolidating, prompting S&P to take ratings actions on cable and phone titans that have announced multibillion dollar agreements in recent months.

In February, S&P changed its ratings on the biggest cableco Comcast to stable from positive, following its plans to acquire Time Warner Cable, the second-largest cable operator, for $45.2 billion. Three months later, S&P affirmed its ratings on AT&T after the company announced an agreement to acquire DirecTV, which will further consolidate and transform the pay TV industry. S&P said the acquisition wouldn’t meaningful affect AT&T’s leverage, pointing out the $67.1 billion agreement mostly consists of equity ($48.5 billion). 

Last month, S&P updated its CreditWatch listing on Level 3, indicating its expectation to raise Level 3’s corporate credit rating to BB- from B+ after the company completes its acquisition of tw telecom. Level 3 plans to wrap up its acquisition in the fourth quarter and has named new management in anticipation of the $7.3 billion deal closing.

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