S&P: Telefonica Chile S. A. And Telefonica Moviles Chile S. A. 'BBB' Ratings Affirmed; Outlook Remains Stable
The rating affirmation reflects our expectation that TC and TMC will remain the leading operators in the Chilean market despite intense competition, especially in the prepaid mobile segment, and recent regulatory changes. The latter include reduction of mobile termination rates, introduction of number portability, unlocking of handsets, prohibitions of exclusive contracts between telcos and building owners, etc. We believe these regulatory changes reduce competitive advantages for more consolidated players in the market.
We view TMC's and TC's credit quality as linked, because of the high degree of integration between the two companies. Therefore, we follow a consolidated approach to the rating, focusing on combined figures for our financial and market position analysis.
We expect the companies to maintain a leading market position both in fixed telephony and mobile segment given strong brand recognition and efforts to protect market share through bundled service offerings and high service quality. This is tempered by the companies' narrow geographic diversification, because they only operate in Chile, and the high competitive pressures in the market. We expect a decline in prepaid mobile revenues due to significant competition and in fixed-line voice due to persistent substitution by mobile. However these should be offset by gains in broadband internet through increasing penetration in the middle - and low-income population segments, greater demand for mobile broadband, marketing of higher speed products, and expanding digital TV business segment.
With the maintenance of significant market share and efficient operations, we expect the companies' cash flow generation to remain sound in the next two years, despite the consolidated company's relatively high capital expenditures (capex) and proposed high dividend distributions.
The consolidated companies' 'bbb+' stand-alone credit profile (SACP), is one notch higher than the rating on their parent company, Telefonica S. A. (BBB/Stable/A-2). Under our group rating methodology, we consider TMC and TC to be moderately strategic subsidiaries for its parent company. We cap their ratings at those on Telefonica because we consider there are not enough elements to insulate the ratings, given the parent's considerable control over both subsidiaries' business strategies and financial policies.