According to Fitch Ratings' latest biannual wireless report, future spectrum auctions, broadband usage-based pricing and evolution of application based wireless services pose longer-term threats to telecom operators' balance sheets and cash flows. Fitch believes Verizon Wireless and AT&T Wireless possess considerable scale, market power, and financial strength to blunt a significant portion of potential substitutive effects. Therefore, lower margin players would at greater financial risk of structural changes in wireless services.
According to the report, depending on the timing of future spectrum auctions, the final amount of spectrum available, and the aggressiveness of the bidding, it's not clear how much capacity and flexibility Verizon Communications and AT&T have within their credit ratings to absorb future spectrum purchases.
Fitch views the acquisition of additional spectrum as a key strategy for operators, as trends in broadband mobility and the changing state of how people use their mobile devices are spurring innovative applications and services that should drive future growth in wireless broadband data. In addition, a key issue for cable companies is whether their wholesale arrangement with Clearwire can bundle competitive offerings that can successfully offset the significant threat from next generation broadband wireless networks as the telecom industry transitions more and more traffic longer-term to wireless.
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