Telco ratings rest on 3G

date: 12th February 2001, source by: afr.com

The telecommunications sector - and its benchmark issuer, Telstra - could be in for a re-rating in the next few weeks as more information becomes available on two fronts: the implications of the sale or break-up of C&W Optus, and the prospects for the sale of third-generation mobile telephony spectrum.

Expectations that large sums would be needed to participate in the Government's auction of 3G spectrum have weighed on the telco sector since last year, as can be seen from the Commonwealth Bank's depiction of Telstra's yield curve which, in the 10-year, is much higher than that of its A+ peer group.

Evidence that such expectations may have been exaggerated, however, has already begun to emerge from the lower-than-expected bidding for 3G spectrum in New Zealand and France. CBA now expects that the sale or break-up of C&W Optus could help weaken the spectrum market here.

Even if a foreign telco acquires Optus assets, unless one of its peers also shows up to the 3G auction, there may only be the same number of bidders as licences.

There is a real chance Telstra could secure a 3G licence for under $500 million. This would remove much uncertainty regarding its near-term funding needs and could be expected to be seen in the bonds spreads.

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