Telecoms companies may take a hit to their credit profiles if Labour’s plans to nationalise parts of BT go ahead, a top rating agency has warned.
Shadow chancellor John McDonnell last week unveiled plans to bring Openreach into public ownership and offer free full-fibre broadband to all UK households by 2030.
But Fitch Ratings warned providers such as Talktalk and Virgin Media could see their revenue and profitability “severely impacted” by the move unless they completely overhauled their business models. It would also reduce or negate the value of the collateral of their debt security package, the firm said.
In a note issued today, Fitch said Labour’s scheme would likely put an end to private sector investment in the UK’s broadband network by challenger firms such as Cityfibre, and would remove incentives for investment in convergent products and services.
Moreover, the firm warned that the sector’s ability to innovate could be hamstrung if alternative providers were to drop out of the market.
“Unlike utilities, where we view a mixed impact in the case of nationalisation, the telecom sector is driven by technology and innovation is crucial to its success,” Fitch said.
The agency also cited concerns about the knock-on effect on other telecoms products and services. The rollout of free broadband would distort the market for bundled products, and could drive up prices for TV, content and mobile, it warned.
Fitch added that the impact of nationalisation on BT would be credit negative, saying the removal of Openreach would leave the telecoms giant with a higher operating risk and lower capacity to borrow.
“Moreover, in our opinion, Openreach nationalisation would be likely to trigger material subsidiary clauses in BT’s existing debt documentation requiring a refinancing of all debt,” it added.
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