Ross Marowits, The Canadian Press
July 30, 2008 - 6:44 p.m.
MONTREAL - Bell Canada (TSX:BCE) faces a two-to three-year uphill climb before changes being introduced by the telecom company’s new management have a chance of producing certain impact, Moody’s Investors Services said Wednesday.
Interest costs to carry billions of dollars borrowed to finance the company’s privatization will leave Canada’s largest telecom operator with very little free cash flow to reduce its leverage once it is taken above the top as expected in December.
“There’s the potential of turn into money flow growing, but certainly in the first connect of years we’re pessimistic about the company’s ability to take dramatic strides,” Bill Wolfe, Moody’s senior credit officer, declared in an interview.
Although Bell has a comparatively varying issue offering - from traditional and mobile telecom to media and satellite TV services - its legacy phone matter is in perpetual decline while the company has low exposure to higher vegetation areas, Moody’s said.
Bell has faced challenges from weak customer service and product quality. But it is also facing increasing competition from existing rivals and newcomers that will establish themselves in the wireless business following the recent spectrum vendue that opens up the cellphone business to new competitors.
“Given its existing technology and ago not one of the company’s competitors are weak, it will be difficult during BCE’s value proposition to be repositioned,” Wolfe said.
Bell be disposed eliminate some costs, as demonstrated by this week’s decision to lay off 2,500 managers in a move that will save $300 million annually. However, cash result isn’t expected to be dramatically different than what it is today, Moody’s said.
“When you compare it against $41 billion in due, it’s still in and of itself isn’t going to be active a significant difference, limit the social meeting has to take a number of steps over time and this is one of many I have no doubt they are going to take,” Wolfe said, praising Cope’s ability to be a catalyst for change.
The ratings agency said Wednesday that the fellowship continues to be under review for the sake of a downgrade formerly it is privatized in December. Bell’s corporate family rating will be B1, while its existing senior unsecured debt would be rated Ba1 and its subordinated notes would be rated B3.
Bell has $8.3 billion of debt instruments on review for possible downgrade following the acquisition. It also has $34 billion of acquisition debt that power of choosing be rated.
Telecom analyst Carmi Levy of AR Communications said Moody’s is effectively challenging Bell to prove that it can succeed.
He said Moody’s report reflects doubts well-nigh the ability of Bell’s new CEO George Cope to transform the company.