Saying Open Mobile’s parent company, P.R. Wireless, has “less than adequate” liquidity, credit ratings agency Standard & Poor’s revised its outlook on the wireless carrier to negative from stable and affirmed its ratings, including the ‘B’ corporate credit rating.
Open Mobile is currently under pressure to remain compliant with a $200 million outstanding credit facility, which it is currently renegotiating with its banks, S&P said in a report. Given its current level of debt, the credit ratings agency said the company’s projected $50 million year-end profit puts it in a “vulnerable” position.
However, Open Mobile’s marketing director Josué González, told News is my Business the company’s finances are solid and the credit revision is not a source of concern.
“We’re renegotiating the company’s agreements related to the $200 million debt and we’re about 95 percent done with that. We’re at very aggressive investment levels right now because we’re rolling out our 4G LTE [Long-Term Evolution] network, which is costly,” he noted.
S&P revised its outlook for the carrier on May 7 to negative from stable, affirming its ‘B’ corporate credit rating and the ‘B’ issue rating on the outstanding debt.
“The outlook revision reflects our belief that PRWireless may be under pressure to remain compliant with the consolidated leverage ratio covenant in the current credit agreement as that tightens in the second quarter of 2012,” S&P said. “However, we do note that the company is currently in discussions to amend the credit agreement, which could result in relaxation of the problematic leverage covenant.”
The credit agency also acknowledged that Open Mobile’s 4G LTE deployment — which should be completed by summer at a cost of $250 million — will allow the carrier to target higher-priced, “data centric” customers, which could also put pressure on its bottom line.
Going after ‘higher paying’ customers
But González said going after the higher-paying customers will allow it to increase its average revenue per user to about $45, on par with the industry average.
“The truth is that our investors told us we had to take advantage of the opportunity that we have now to launch 4G LTE. For the first time, Open Mobile will be at the forefront of technology, and with that, we’ll be able to sign up clients who will pay a bit more for the next-generation mobile broadband access,” González said.
As of Dec. 31, 2012, Open Mobile had about 340,000 subscribers in Puerto Rico, where it competes against AT&T, Claro de Puerto Rico, T-Mobile and Sprint/Nextel. It is the only local carrier basing its service on a prepaid, no-contract model, something S&P also noted as worrisome.
“With its lack of customer contracts, P.R. Wireless’ prepaid wireless business is inherently riskier than traditional postpaid, and viability of the business models requires control of churn and subscriber acquisition costs,” it said. “Mitigating factors include the attractiveness of a prepaid wireless offering given continuing economic weakness in Puerto Rico; the low subscriber acquisition costs characteristic of prepaid; and potential longer term growth if the company can leverage its improving 4G availability to better penetrate higher average revenue per user, ‘data centric’ customers.”
To that, González told News is my Business that Open Mobile has developed and is currently considering introducing a “hybrid” structure that may require some sort of contractual agreement with customers.
“The thing about contracts is that it won’t eliminate churn. We see that every day. Puerto Rican consumers will do the math and if it benefits them to pay the penalty to get out of a contract, they will,” he said, noting details of the new structure will be disclosed later this year.