March 2, 2017 / 6:24 PM / 5 months ago

Moody's lowers outlook on U.S. telecom industry amid price war

WASHINGTON, March 2 (Reuters) - Moody's credit rating agency lowered its outlook for the U.S. telecommunications industry to negative from stable on Thursday amid growing price competition for wireless services.

Moody's vice president and senior credit officer Mark Stodden forecast in a report that U.S. aggregate wireless industry cash flows would fall by 2 percent in 2017.

Analysts have said that the industry's push to compete on unlimited data plans could hurt profit margins, putting more pressure on carriers to control costs.

In a shift in the price wars among the four biggest U.S. wireless carriers, Verizon Communications Inc last month said it would once again offer an unlimited pricing plan.

Verizon, the biggest U.S. wireless carrier, would be making the offer for the first time in more than five years. AT&T Inc , T-Mobile US and Sprint Corp all responded by sweetening their existing unlimited data plans.

The Moody's Corp report said T-Mobile's strategy has "pushed its bigger peers to an unhealthy level of competition" and said the expansion of unlimited data plans would reduce the industry's long-term revenue growth potential.

At the same time, the new data plans will prompt more data usage and require more capital spending by carriers, Moody's said, predicting a 7 percent growth in capital investment to fund network traffic volumes this year.

The report predicts flat aggregate industry cash flow in 2018 after strong cash flows in 2015 and 2016.

The shift is "in response to competitive pressures, with Verizon and AT&T now responding more deliberately, particularly to T-Mobile’s relentless marketing and expanding market share."

Stodden also said cable firms could pose an additional threat.

Cable operators Comcast Corp and Charter Communications Inc have said they will launch wireless services on Verizon’s airwaves in 2017 and 2018, respectively.

A tie-up of Sprint and T-Mobile "would reduce price pressure and provide a path back to aggregate industry cash growth," the report said. Moody's puts the odds of Trump administration regulators approving a tie-up at around one in three.

Reuters reported on Feb. 17 that SoftBank Group Corp is prepared to cede control of Sprint Corp to Deutsche Telekom AG's T-Mobile to clinch a merger of the two U.S. carriers, citing people familiar with the matter.

SoftBank has not yet approached Deutsche Telekom to discuss any deal because U.S. regulators imposed strict anti-collusion rules during an airwaves auction. After the auction ends in April, the parties are expected to begin negotiations. In 2014, SoftBank abandoned talks to acquire T-Mobile for Sprint amid opposition from U.S. regulators. (Reporting by David Shepardson in Washington and Anjali Athavaley in New York; editing by Grant McCool)

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