Italy’s recent 4G spectrum auction and the country’s perilous financial state is taking its toll on operators, with Fitch Ratings cutting its outlook on Wind and Telecom Italia.
Wind is a victim of its own success in the 4G auction. Fitch believes the €1.1 billion ($1.5 billion) the operator agreed to pay for 800MHz and 2.6GHz spectrum will raise the firm’s leverage without delivering immediate benefits. As a result, the agency has cut its ratings outlook from stable to negative.
“Coupled with a likely negative impact of any austerity measures in Italy, this investment significantly reduces headroom within the current rating level, it may significantly slow down deleveraging and reduce free cash flow generation,” Nikolai Lukashevich, senior director with Fitch's telecoms, media and technology (TMT) team, explains.
The ratings firm also flags concerns over Wind’s long term financial position, noting revenues and EBITDA fell during the second quarter, and that the firm’s pricing advantage is much diminished compared to 12 months ago.
Incumbent Telecom Italia enjoyed similar treatment, with Fitch notching the telco’s long-term issuer default rating to negative from stable in anticipation of a drop in domestic earnings.
Fitch is concerned business in Italy might simply drop off, but also notes the country’s sovereign weakness might hit Telecom Italia’s debt refinancing options.
"Telecom Italia is at risk from any additional Italian government austerity measures given the limited headroom it has at the current rating level," Damien Chew, senior director in Fitch's European TMT division, says, adding. "However, Fitch recognizes that management has capex flexibility in its domestic fixed business to protect free cash flow generation."