S&P: Belgian Telecommunications Service Provider Proximus 'A/A-1' Ratings Affirmed; Outlook Stable
The affirmation follows our recent review of Proximus' results for full-year 2015 and the first half of 2016. We acknowledge the company's success in sustaining, and even increasing, its solid domestic market shares in fixed-line broadband, digital TV, and wireless services. We think Proximus has a competitive advantage in terms of wide coverage networks, a large customer base, and steady development of data and bundled products.
We think that Proximus' growing share of triple and quadruple play bundles should help the company improve its customer mix, therefore increasing its average revenues per user in the future. We also believe this will support customer retention, despite intensified competition in converged services after the recent market consolidation when cable player Telenet acquired mobile operator Base. Furthermore, we expect that mobile data monetization, supported by 4G+ (fourth generation) roll-outs, should continue to offset negative impacts from lower prepaid revenues and regulatory driven cuts in data roaming.
Although higher competition in converged services will likely require continuously heavy outlays, in particular to further the fiber coverage and market fixed-mobile convergent services, we anticipate that recent market consolidation should contribute to healthy mobile pricing in the future.
The stable outlook on Proximus reflects our view that the company will maintain strong business positions in both the fixed-line and mobile telecoms segments in Belgium, preserve sound EBITDA margins, and maintain adjusted debt to EBITDA below 2x, FFO to debt above 45%, and FOCF to debt above 20%.
Additionally, the stable outlook also reflects that on the sovereign rating on Belgium (AA/Stable/A-1+).
Factors that could prompt us to lower the rating are:A more aggressive financial policy, resulting in marked and prolonged negative discretionary cash flow, if this were to lead to a sustained increase in leverage above 2x; or Our view of a weakening likelihood of government support for Proximus in the event of financial distress. Additionally, an outlook revision to negative on the sovereign rating on Belgium could also lead us to take the same action on Proximus.
We are unlikely to raise our ratings on Proximus because this would likely require a significant diversification of the business, combined with a further strengthening of the financial risk profile or a positive change in our view of the likelihood of government support.