Fitch: Russian telecom pressured

Fitch Ratings said that Russian fixed-line telecom incumbents are under regulatory pressure to increase capital expenditure on network modernization.

"Additional infrastructure investments will hardly lead to significant incremental revenues and earnings, but they will delay the moment when these operators turn to sustainable free cash flow generation," said Nikolay Lukashevich, director with Fitch's TMT team.

"A negative impact on ratings is unlikely. However, for some issuers, additional capex may prove to be a credit constraint in the short- to medium-term."

The agency said that the new regulation is primarily targeted at fixed-line incumbents, subsidiaries of Svyazinvest, with their extensive legacy analogue infrastructure.

Although Svyazinvest prioritized network development and modernization after merging the fixed-line telecom industry into seven super-regional operators in 2002, at end-2006 only 63% of its lines were digitalized with the average digitalization rate of 68% in urban territories and 36% in rural areas, Fitch noted.

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