Debt-Heavy Telecoms Won’t Escape the Credit Crunch

As earnings estimates shrink, the financial crisis should crimp telecommunications carriers’ spending. Sprint is at risk of defaultThe $1 trillion telecommunications industry has long been one of the most resilient parts of the economy. But as the financial crisis has intensified, it has recently become clear that telecom can’t escape the fallout of the credit crunch.Although most analysts believe the damage won’t be nearly as bad as the last telecom bust — when hundreds of firms went bankrupt, including giant Worldcom — there is growing evidence that the financial crisis is going to depress the debt-heavy telecom industry. To start with, rising capital costs are likely to take a bite out of earnings. In addition, the softening economy will probably crimp demand for such telecom services as land lines, cell phones, and Internet connections. Over the last week several Wall Street analysts trimmed their 2009 earnings estimates for AT&T, Verizon Communications, Sprint Nextel, and other operators. “Everyone is going to pay more for credit,” says Craig Moffett, a senior analyst with Sanford Bernstein who has been bearish on telecom stocks.To read this BusinessWeek article in full, see www.businessweek.com/technology/content/oct2008/tc20081019_305088.htm.

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