Fitch revised outlook on Kazakhtelecom rating to "positive"
Astana. December 31. KazTAG - The international rating agency Fitch Ratings has revised the outlook on "Kazakhtelecom" rating to "positive" confirming "BB" rating, the company said.
"Fitch Ratings has revised the Outlook on Kazakhtelecom JSC's (Kaztel) Long-Term Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at 'BB'. The agency has also upgraded the National Long-term rating to 'A+(kaz)' from 'A(kaz)' and assigned a Positive Outlook," said the agency.
The Outlook revision to Positive reflects the company's improving liquidity, narrowing mismatch between predominantly domestic revenues and FX debt, improving cash flow, a successful launch of mobile operations and therefore lower execution risks associated with further mobile expansion.
The experts reminded that Kaztel is a strong fixed-line incumbent, with a near monopoly position in the traditional telephony and high broadband market share, operating in a benign regulatory environment. The company re-entered the mobile mass market with its LTE service in 2014, providing it with a quad-play capability.
"Kaztel is likely to maintain its dominant positions in the fixed-line segment, helped by benign regulation and a shortage of alternative networks. Kaztel estimated its fixed-line telephony market share at a high 93% at end-2013. Fixed-to-mobile substitution is a key threat, and this will drive modest fixed-line disconnections and pricing pressures in the voice segment, in our view. Expected interconnect rate cuts may exert additional pressure on traditional fixed-line revenue in the medium term but should not trigger any significant changes in the competitive environment," said the agency.
The agency indicated positive broadband prospects.
According to Fitch, the Kazakh broadband market still retains strong growth potential, driven by fairly low broadband penetration in the country (31% of households as of end-2013). The company remains an absolute broadband leader with over a 70% market share. Kaztel has completed its fibre infrastructure roll-out in key cities, strengthening its technological advantage over peers. Key large rival Vimpelcom significantly slowed down its broadband expansion in the country in 2014, which should lead to less aggressive competition for Kaztel.
"The company is facing reasonably positive prospects in the mobile market with its LTE service. Kaztel remains the only 4G operator in the country, which gives it a significant competitive advantage over peers in terms of broadband speed that it can offer to its customers. New subscriber additions in the data-only (dongles) segment have been strong, implying that the company has been able to convert its technological advantage into market share gains. An expected decline in low-ARPU CDMA voice subscribers has been largely offset by new higher-paying GSM customers," reads the statement.
Execution risks are notably higher in the mass mobile segment. The Kazakh market is well-penetrated with 3G data and GSM voice services and is highly competitive.