Telecom's New Dividend Strike

Telecom dividends are falling like bowling pins in Europe.

France Télécom cut its 2012 payout by about 9%, following cuts by Spain's Telefónica and Telekom Austria in December. Lowering payments to shareholders is one way telecom groups are addressing concerns over debt as their cash flow declines. More could be on the line. Falling cash flows are bringing high debt levels across Europe's telecom groups into greater focus. Among the most indebted are Telefónica and Telecom Italia, where home-market revenue fell 9% and 4%, respectively, in their most recent quarters. Telefónica's estimated €20 billion ($26.5 billion) refinancing needs and Telecom Italia's €12 billion over the next three years make retaining investment-grade status crucial, notes Goldman Sachs. That remains a concern: Their ratings are only three and two notches, respectively, above high yield.