The possibility of further leveraged buyout ("LBO") activity cannot be excluded, but Fitch does not expect to see any material downgrading of the sector to lower than the mid-to-upper end of the 'BBB' range, based on the current business risk mix and established financial policies. M&A risk is viewed by Fitch as event risk. Certain operators continue to have ratings in the single 'A' range, reflecting factors such as scale, diversification and/or low leverage.
International diversification has afforded some operators a degree of protection against the trends in their home markets. Regulation remains a risk area that Fitch will continue to monitor closely in 2007. Financial policies and practices are reasonably well defined and factored into Fitch's ratings. These trends, combined with increased shareholders' distributions, have limited the capacity for debt reduction and this is reflected in the mid-'BBB' to low single 'A' stance for the high grade operators.
Issuers considered in the report include: BTGroup plc and British Telecommunications plc ('BBB+'), Deutsche Telekom, AG ('A-' (A minus), France Telecom ('A-' (A minus)), Royal KPN N.V. ('BBB+'), OTE PLC ('BBB'), Societe Francaise du Radiotelephone ("SFR", 'A-' (A minus)), Telecom Italia SpA ('BBB+'), Telefonica Europe BV (including O2) ('BBB+'), TeliaSonera ('A-' (A minus)), Telenor ('BBB+'), Telekommunikacja Polska SA ('BBB+') and Vodafone Group Plc ('A-' (A minus)).
The European Telecom Sector Outlook Report, in which Fitch reviews industry conditions and the key ratings drivers for the European telecom sector in 2007, is available from the agency's website, (www.fitchratings.com).
