Credit rating group, S&P Global dropped Telstra’s credit rating, saying the country’s top telecommunications company has a “diminished” role in the industry and faces difficulty in executing a plan to move from telco to ‘techco’ (a technology-driven company).
The short-term rating was decreased from A-1 to A-2. These ratings reflect a company’s ability to meet its financial commitments. Telstra’s shares fell 1% to close at $2.84 after the S&P news was published.
S&P telco analyst Graeme Ferguson said the impact of the National Broadband Network and more industry competition were the drivers behind the long-term downgrade from A to A-.
Part of the reason Telstra’s rating has been downgraded is a concern about how the telco will plug a $3 billion earnings shortfall in two years when one-off payments stop from the National Broadband Network.
Telstra blamed increasing competition as a concern for the business, with margins squeezed for mobile customers in particular, when revealing an earnings fall in mid-May.
S&P said in its note that competition has intensified across Telstra’s core businesses and the company has had to accept lower margins to protect its dominant market share.
“The Australian mobile market has become highly competitive,” says S&P.
“In our opinion, Telstra’s vulnerability to an erosion of its price premium and dominant market share has increased over the past few years despite elevated network investment.
“Competing mobile network operators have also made large investments in their networks and product offerings.
We expect competition to further intensify with the likely entry of TPG Telecom as Australia’s fourth mobile network operator,” S&P said.
(TPG is due to start its new mobile network in 2019).
