Telecom Gets Good News from FCC

Market players said two federal decisions last week should have positive implications for the high yield telecom sector.

The first involved the ongoing fight over just what the large Bell companies must lease to the smaller re-sellers at discounts. The Federal Communications Commission last week re-affirmed its 1996 decision that the re-sellers needed to have access to the majority of the seven major pieces of the Bells' networks in order to enhance competition, which is the stated objective of the FCC.

That's significant because in January, the U.S. Supreme Court made the FCC take a second look at the decision and reconsider which pieces are really necessary to smaller entrants in the telecom market.

Telecom investors said last week that with a better competitive landscape, the returns in high yield should improve over the coming months. With enhanced competition in an area once dominated by investment-grade issuers, the competitive local exchange carriers will be better able to attract customers and will eventually post higher cash flows.

One significant portion of the telecom infrastructures that was a victory for the Bells in last week's decision - in other words, an area of their business that they do not have to lease to the re-sellers - is the popular high-speed Internet services.

This issue is expected to linger as appeals are said to be in the works over the methodology used by the FCC.

The second announcement last week from the government, a move designed to increase competition in the wireless sector, saw the FCC implement rules that increased the amount of spectrum that carriers can own in rural areas. And it said it was considering similar moves for urban areas.

The increase to 55 megahertz from 45 megahertz comes in the midst of rampant consolidation in the sector, which has heightened the importance of the amount of spectrum allowed by one carrier.

The move had actually been expected, said David Wells, telecom analyst at Lehman Brothers, so it had little immediate impact on the outstanding bonds in the industry.

But a telecom investor said it definitely has implications in the long-term competitive health of the industry, as the smaller high yield players compete against the large wireline companies.