Spectrum cost could hit telcos' ratings
The government is auctioning spectrum as the country switches off the analog TV signal and makes the space available for mobile phone operators. It is expected to raise billions from the sales.
Moody's says the cost of spectrum has "the potential to narrow the financial cushion within Telstra's A2 rating". The ratings agency expects Telstra to pay about $1.7 billion for the maximum allocation of spectrum.
But Moody's expects pressure on the telco to be short term, given the company's large cash reserves and strong cash flows. It expects spectrum cost to exert greater pressure on SingTel's balance sheets.
Telstra recently issued $1.3 billion of eurobonds to finance the cost of spectrum.
Telcos need more spectrum to carry data on mobile networks and are struggling under increasing demand from consumers. The frequency up for auction - 700MHz - is occupied by analog television signals. It is valuable because it is efficient and works well over long distances.
Meanwhile, Telstra has won a $1.1 billion contract with the Department of Defence to provide telecoms services to the defence force.
Telstra chief executive David Thodey said it was the largest customer undertaking in the company's history and would support military operations in Australia and overseas.
"We will create 350 new positions to help serve the contract, including recruiting some of the nation's leading IT, network and security experts," he said.
Telstra shares closed at $4.79, down slightly from Wednesday's near five-year high of $4.82.
Frequently Asked Questions about this Article…
Moody's warns the spectrum cost could narrow the financial cushion around Telstra's A2 rating. It expects Telstra to pay about $1.7 billion if it wins the maximum allocation, which could put short-term pressure on the rating — although Moody's also notes Telstra's large cash reserves and strong cash flows should limit that pressure.
Yes. Moody's expects the spectrum cost to exert greater pressure on SingTel's balance sheets compared with Telstra. The article says the auction could tighten financial cushions for telcos and that SingTel is likely to face more strain from the payouts.
Moody's expects Telstra could pay about $1.7 billion for the maximum 700MHz allocation. To help finance spectrum costs, Telstra recently issued $1.3 billion of eurobonds.
The 700MHz band is currently used by analog TV and is valuable because it is spectrally efficient and works well over long distances. That makes it particularly useful for mobile operators needing capacity and wide coverage to carry increasing mobile data demand.
Telcos need more spectrum to carry growing volumes of mobile data as consumer demand increases. More spectrum gives operators additional capacity to support mobile traffic and improve network performance.
Telstra won a $1.1 billion contract with the Department of Defence to provide telecoms services to the defence force. The company says it is the largest customer undertaking in its history and will support military operations in Australia and overseas, creating 350 new positions and recruiting IT, network and security experts.
No. Moody's says spectrum costs are likely to put Telstra and SingTel's ratings under pressure, but it expects the pressure on Telstra to be short term because of strong cash reserves and cash flows. However, Moody's indicates SingTel may face greater and more sustained balance-sheet pressure.
Telstra shares closed at $4.79, slightly down from Wednesday's near five-year high of $4.82, according to the article.
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