Correction: Fitch: U.S. Telecoms Again Battered by Fierce Competition in 2004.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 11, 2003

(An earlier version of this press release also dated Dec. 11, 2003, references the U.S. and Canada telecom sector. In fact, the published 2004 telecom outlook concerns the U.S. only.)

Competition presents such a severe risk for the battered U.S. telecom sector that it remains the key driver of the negative rating outlook that Fitch Ratings maintains for the sector, according to an outlook and review published today by the rating agency. Fitch has published several 2004 outlooks concerning various industries as well as other fixed-income sectors.

An industry-wide inability to rationalize the number of competitors and install pricing discipline will lead to even greater competition for the sector. This ultra-competitive environment will be further exacerbated by regulatory policies, technological substitution and the re-emergence of restructured carriers.

Regulatory policies continue to create greater price competition as operators attempt to retain subscribers or compete for market share. For example the Unbundled Element policy (UNE-P) allows competitors to pick and choose key infrastructure elements of incumbent operators at substantial discounts. Competitors recombine these elements to offer deeply discounted services, which continue to force down pricing. In addition, these regulatory policies do not favor facilities-based competition and remove the incentive to invest in new technologies and services because they would be required to be made available to competitors at discounts. Another open network policy that will impact the industry in 2004 relates to number portability, which will further increase competition in the wireless arena by removing the hurdle of changing numbers when switching service providers.

Technological substitution has caused demand to shift to newer more flexible technologies such as wire line traffic to wireless networks. However, this type of technological shift has caused little new revenue growth, but instead a shift in revenue mix between technologies. Another impact of technological shifts is that it tends to reduce pricing because new capacity has a lower price point.

Fitch forecasts flat growth for retail revenue and flat-to-slightly down business revenues. The retail revenue segment remains greatly impacted by competition and substitution, but the business revenue segment is reliant on a stronger economic recovery. A return to material revenue growth cannot happen for the sector without improvements in unemployment, which are closely tied to Information Technology (IT) service spending.

Reinforcing our negative credit outlook for the next year, Fitch expects telecoms to shift their utilization of free cash flow away from balance sheet management and towards dividends and share repurchases.

The outlook 'U.S. Telecoms Again Battered by Fierce Competition in 2004-Amended' can be found on Fitch's website at 'www.fitchratings.com' by linking to the 'Corporate Finance' sector, clicking on 'Global Power' and then 'Special Reports'. Fitch will be maintaining a web page with a full list of 2004 outlook pieces that will be readily available on 'www.fitchratings.com'.