OREANDA-NEWS. Fitch Ratings says in a new report that bondholders would face challenges in the event of the structural separation of an incumbent network - a question prompted by UK regulator Ofcom's ongoing review of digital communications in the UK. Fitch also believes the prospect of a referral to the Competition and Markets Authority would create uncertainty for BT bondholders given the time this would entail.

A regulatory outcome that includes structural separation of an incumbent network raises complex questions over how existing debt could be structured to ensure bondholders have access to a credit risk that is broadly similar to the pre-separation cash flow. In Fitch's view, these questions are more challenging than those that might be faced by equity holders. Similar challenges would exist with respect to pension liabilities - liabilities which can be material in the case of incumbent telecoms.

The report also looks at what Fitch views as the fairly advanced state of Europe's high speed broadband networks, driven by infrastructure-based competition, regional consumer behaviours and to varying degrees, a stable regulatory outlook.

Fitch analyses the state of next generation access (NGA) networks across the region's leading economies; the technologies being employed, discusses why network access is more advanced in some markets and what it considers to be the key drivers to these advances.

Incumbent network coverage is found to be most advanced in those markets where fibre to the cabinet strategies have been deployed - a less expensive technology than fibre to the home (FTTH); but one which is ultimately in Fitch's view likely to continue to face a technology disadvantage to the superior speeds offered by cable networks.

Those markets where FTTH is being pursued will ultimately enjoy superior or more
competitive speeds. This technology and accompanying civil works, is nonetheless expensive and in Fitch's view, less likely to be deployed on a ubiquitous basis.

The report, European Broadband Networks - the State of Next Generation Access; Thoughts on Structural Separation, is available on www.fitchratings.com.