Telekom Austria AG

The outlook is stable because we expect Telekom Austria will continue to increase its service revenue in the Austrian and CEE markets and successfully manage its cost base. We also expect that management will remain focused on further improving credit metrics. In our view, credit metrics will steadily and sustainably strengthen to levels commensurate with the rating in 2020-2021--namely adjusted debt to EBITDA of below 2.5x, funds from operations (FFO) to debt of 35%-40%, and FOCF (before spectrum outlays) to debt approaching 15%. Rating downside could occur if the company's operating performance or deleveraging path failed to meet our forecasts, preventing adjusted debt to EBITDA from strengthening sustainably below 2.5x and FOCF to debt toward 15%. This could result from

...S&P Global Ratings expects Telekom Austria AG to further deleverage over 2020-2021. We anticipate that Telekom Austria's financial risk profile will strengthen in 2020-2021, based on the company's financial policy to deleverage toward 1.5x, from 2.0x at June 30, 2019. We also see limited M&A risks and continued sound operating performance, leading to slightly increasing EBITDA and the capacity to cut debt. This is based on steady discretionary cash flow (DCF) generation of about 300 million annually before spectrum investments. We expect the company's sound operating performance to continue. We forecast positive service revenue growth, supported by mobile Wi-Fi router uptake and an improving customer mix on the fixed side, stemming from TV and fiber upselling and from the enterprise segment. This should mitigate the negative trend in retail fixed voice and some modest pressure on the fixed broadband subscriber base. We think foreign operations will provide faster growth. In our view, the...

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