OREANDA-NEWS. September 16, 2010. Rating agency Fitch Ratings has affirmed its BB long-term foreign currency issuer default rating (IDR) for VolgaTelecom.  The long-term IDR Outlook was revised to Positive from Stable.  In addition to VolgaTelecom, the rating Outlooks for five other regional telecommunications operators (RTOs) controlled by the Svyazinvest Group of companies were also upgraded.

"The revision of the Outlooks to Positive reflects Fitch's expectation that the pending merger of the six regional incumbent telecom operators and Rostelecom (RTS: RTKM) will result in significant operating and financial synergies," says Nikolai Lukashevich, Senior Director in Fitch's Telecoms, Media and Technology team.

The single enlarged operator will benefit from a streamlined operating strategy across all its geographies and market segments. This will ultimately remove internal competition between the regional incumbents and Rostelecom in the corporate segment, and rule out network overbuild. The new enlarged operator will be able to promote best practices across Russia and develop a uniform network modernization strategy and technological solutions which will likely deliver a significant economy of scale and create the potential for substantial capex savings.

“The merger will help strengthen the operator's product proposition, particularly in the mass residential segment. The new Rostelecom will be able to bundle local and long-distance voice services, but also broadband, and potentially mobile services into one package. The wider bundling opportunities are a strategic operating advantage, and may become a more pronounced differentiating tool in future”, Fitch Rating’s report said.

The corporate reorganization is also likely to improve treasury/debt management efficiency, according to the agency’s analysts.

However, Fitch notes that although the potential synergies are high, uncertainty remains over whether the synergies can be successfully realized as Rostelecom is facing a large number of organizational and managerial challenges.

The rating actions for VolgaTelecom are as follows:

Long-term foreign currency IDR: affirmed at BB; Outlook revised to Positive from Stable;

Long-term local currency IDR: affirmed at BB; Outlook revised to Positive from Stable;

Foreign currency senior unsecured rating: affirmed at BB;

Local currency senior unsecured rating: affirmed at BB;

Short-term foreign currency IDR: affirmed at B;

National Long-term rating: affirmed at AA-(rus); Outlook revised to Positive from Stable;

National senior unsecured rating: affirmed at AA-(rus).