Call-Net Enterprises Inc. & fONOROLA Off S&PWatch.

TORONTO--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/8/98- Standard & Poor's today affirmed its ratings on Call-Net Enterprises Inc. and fONOROLA Inc. (see below) and removes them from CreditWatch. The ratings were placed on CreditWatch with negative implications on April 15, 1998 following Call-Net's announcement that it had made an offer for fONOROLA Inc.

Standard & Poor's also assigned its double-'B'-minus rating to Call-Net's proposed US$450 million issue of senior unsecured notes.

The outlook is stable. The rating affirmation follows Call-Net's successful C$1.8 billion offer for fONOROLA, which will be financed through a combination of cash and class-B non-voting shares and will involve the issuance of approximately C$650 million of debt by Call-Net.

The ratings reflect Call-Net's improved business position following its purchase of fONOROLA, which serves to enhance the foundation from which Call-Net can enter new markets and launch new products. The ratings also take into account the anticipated operating and capital synergies that will result from the combination of the two companies while recognizing the risks associated with the integration of fONOROLA into Call-Net. The company's increased debt leverage following the acquisition combined with Call-Net's future capital expenditure requirements will ensure that absolute levels of debt will remain high for the foreseeable future.

The combination of Call-Net with fONOROLA strengthens Call-Net's position in the Canadian long distance and data services market. The combined company has an approximate market share of 15% and will benefit from a largely owned network that now offers full Canadian coverage of the long distance market. This will serve to reduce access and termination costs while eliminating future duplicate network investments. In addition, the transaction has resulted in a larger and more diversified customer base. Historically strong in the residential and small-medium business segments, the purchase of fONOROLA significantly increases Call-Net's presence in the large business and carrier markets.

Call-Net's added strength in the long distance business provides a solid platform from which the company can enter new markets. Through fONOROLA's network in the United States, Call-Net will be better placed to enter both the U.S. domestic long distance and data services market and the overseas telecommunications market once Teleglobe Inc.'s monopoly on Canadian international telecoms services ends in October 1998. In addition, the company will enter the Canadian local services market in 1999 and will seek to expand its presence in the internet market. Pursuing a hybrid strategy involving the leasing of local loops and building switching facilities, Call-Net will roll-out its local service across Canadian urban areas on a gradual basis. This process will involve significant investment and Standard & Poor's expects that the local business will remain unprofitable in the medium-term.

Call-Net's future capital expenditure requirements are material. As a result, the company's level of debt, which increased following the purchase of fONOROLA, will remain high. However, earnings and cash flow generated by the long distance business combined with the anticipated capital and operating synergies arising from the integration of fONOROLA, are expected to be more than adequate to support Callnet's debt burden. In addition, the company benefits from the fact that no cash interest is payable on the company's existing US$190 million and US$175 million senior discount notes until 2000 and 2003 respectively while a large portion of the new debt to be issued will also benefit from a similar provision.

OUTLOOK: STABLE

The enhanced strength of Call-Net's core long distance business position helps to mitigate the risks associated with the company's entry into new markets and increased debt burden, Standard & Poor's said. -- CreditWire

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OUTSTANDING RATINGS AFFIRMED AND REMOVED FROM CREDITWATCH

Call-Net Enterprises Inc.
Corporate credit rating       BB-
Senior unsecured rating       BB-
Bank loan rating              BB

fONOROLA Inc.
Corporate credit rating       BB-
Senior secured rating         BB-



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