Just as only a very ill wind blows nobody any good, so there is always somebody that can find a downside in even the best developments, and Moody’s Investors Service Inc is worried about telecommunications companies in the present climate of deregulation and competition. According to Reuter, it warns that phone companies will face increased credit risk as they diversify outside of domestic franchises in the 1990s. While global diversification is attractive from an equity holder’s perspective, we expect that such strategies will require bondholders to bear the burden of new political, financial and business risks outside of managements’ experience, Moody’s said. As a result, international expansion could negatively impact credit ratings at both the holding company and the operating telephone company levels. Moody’s notes that the worldwide trend toward privatisation will create an explosion of cross-border investment opportunities over the next few years, and declares that this is a matter of some concern from a credit perspective, citing the limited financial rewards or management success in international activities to date, bureaucratic minefields and varying degrees of government involvement in business practices, currency risks, country currency restrictions and repatriation of cash flows. Some 40 governments around the world have already announced changes in telecommunications policies to favour open-market competition over government involvement and some have privatised their entire telecommunications networks, while others have applied a combination of private and public ownership. The increased globalisation will also mean domestic markets that were once considered safe and needing little management time will now demand significant oversight and additional financial resources to the industry.
