TEXT-S&P revises Alestra S. de R.L. de C.V. outlook to negative

Overview
-- Alestra S. de R.L. de C.V.'s loss of its key strategic partner, AT&T
Inc., will likely have a continuous moderate impact on revenues and
profitability.
-- We are revising the outlook on Alestra to stable from negative.
-- We are also affirming the 'B+' foreign and local currency ratings and
the '3' recovery rating on the company.
-- The stable outlook reflects our expectation of modest revenue growth
from 2013 onwards and a gradual improvement in the company's financial metrics.

Rating Action
On Sept. 19, 2012, Standard & Poor's Ratings Services revised its rating
outlook on Mexico-based telecommunication company Alestra S. de R.L. de C.V to
stable from negative. At the same time, we affirmed our 'B+' foreign and local
currency ratings and the '3' recovery rating on the company.

Rationale
The outlook revision reflects the lower-than-expected revenue loss that
resulted from the absence of AT&T Inc.'s (A-/Stable/A-2) global network
agreement (AGN) services and our expectation that higher growth in the
value-added services (VAS) segment will offset the revenue losses as the
contracts with AT&T phase out due to Alestra's intense focus on information
technology (IT) services and its infrastructure leasing to AT&T.

The ratings on Alestra mainly reflect the company's weak business risk profile
due to strong competition from stronger and better capitalized companies, such
as Telefonos de Mexico S.A.B. de C.V. (A-/Stable/--), in an industry subject
to increasing pricing pressures and declining revenues from traditional
long-distance services; and the loss of its key strategic partner, AT&T,
limiting further growth after the contracts phase out in 2012.

The ratings also reflect Alestra's significant financial risk profile, given
its exposure to foreign exchange risk derived from its 100% U.S.
dollar-denominated debt and the near maturity of its bond in 2014. The factors
that offset these weaknesses include Alestra's niche competitive strategy of
targeting services to multinational companies; its large and midsize
enterprises and high-end residential users; the support from its parent
company, Alfa S.A.B. de C.V (not rated); its well-established network, with
significant market share in Mexico (foreign currency BBB/Stable/A-2, local
currency A-/Stable/A-2); and its margin stability and positive free operating
cash flow (FOCF) generation. The '3' recovery rating on the company indicates
our expectation of meaningful (50%-70%) recovery in the event of a payment
default.

Alestra has focused on offering VAS, primarily data and Internet, and it
recently began offering IT services such as local-area network (LAN),
wide-area network (WAN), hosting, storage, cloud applications, managed
security services, consulting, in order to move away from the long-distance
services segment. For the 12 months ended June 30, 2012, VAS represented
approximately 80% of Alestra's revenues.

We believe that the company's revenue could decrease in the low-single digit
range in 2012 due to the loss of revenues related to the use of AT&T's global
network, partially mitigated by the expanding IT services segment, which
increased 3.5% during the first half of 2012, compared with the same period in
2011. We also expect IT services to become the main source of growth, allowing
for stable revenue growth of about 2%-3% in 2013 and beyond. In addition, we
expect that AT&T will lease part of Alestra's infrastructure for at least a
year, given its familiarity with it. Nevertheless, we estimate that revenue
from this source could decline in 2013 and after, since attractive pricing
from competitors could drive the U.S. company to lease from other operators.

EBITDA margins increased to 38.3 % during the 12 months ended June 30, 2012,
from 34.9% as of the same period last year, as a result of a one-time
cancellation of the provision of fixed-to-mobile interconnection rates in
February 2012. Alestra reached a favorable agreement with Telcel (not rated)
regarding the applicable interconnection rates for traffic terminating in
Telcel's mobile network, which are lower than the rates from previous periods.
We expect that margins will normalize to about 34%-36% in 2013 and beyond,
further enhanced by the substitution of leased infrastructure for owned
deployed network. As a result, we also expect that total adjusted leverage
will likely remain below 2x over the next 24 months, with interest coverage
remaining higher than 4.5x and funds from operations (FFO) to debt higher than
40%.

Liquidity
We consider Alestra's liquidity as "adequate," based on our criteria. As of
June 30, 2012, the company reported approximately Mexican peso (MXN) 752.1
million in cash and cash equivalents, with approximately MXN416.5 million in
restricted cash held in a trust to guarantee the payment on the
interconnection services in dispute with Telmex, which probably will be
resolved this year.

We expect that the sources of liquidity will include cash of approximately
MXN752.1 million as of June 30, 2012, as well at least MXN1.4 billion in FFO
during the next 12 months. The cash uses during the next 12 months will likely
include MXN30 million to MXN40 million for working capital requirements, at
least MXN1.0 billion of capital expenditures, and approximately MXN130 million
for debt repayments. In line with our criteria, we expect the sources of
liquidity to exceed uses by more than 2.0x in the near-term and 1.8x in 2013,
and for net sources to remain positive--even with a 15%-20% decline in EBITDA.
In 2014, the company will face a bond maturity that could hurt its liquidity
position if the bond is not refinanced ahead of time

Alestra has generated positive and stable FOCF as a result of its moderate
capital expenditure program, which has generated additional cash holdings.

The company's notes have a maximum leverage covenant of 3.5x and interest
coverage of 2.0x. In addition, the company is in compliance with the financial
covenants under its term loan as of June 30, 2012. We expect that Alestra will
maintain an ample cushion under its covenants in 2012

Outlook
The stable outlook reflects our expectation of modest revenue growth in 2013
and beyond and a gradual improvement in the company's metrics.

We could consider raising the ratings if the company meets our expectation for
revenue growth by maintaining EBITDA margins of more than 30% and stable key
credit metrics coupled with its ability to refinance its 2014 bond before the
scheduled maturity date. Conversely, we could lower the ratings if business
pressures stunts growth in the IT services segment, if the absence of AT&T's
global network services hurt revenue and profitability, leading to EBITDA
margins of less than 30%, or if the company's debt maturities hurt its
liquidity position.

Related Criteria And Research
-- Key Credit Factors: Business And Financial Risks In The Global
Telecommunication, Cable, And Satellite Broadcast Industry, published Jan. 27,
2009
-- 2008 Corporate Criteria: Analytical Methodology, published April 15,
2008

Ratings List
Ratings Affirmed; CreditWatch/Outlook Action
To From
Alestra S. de R.L. de C.V.
Corporate Credit Rating B+/Stable/-- B+/Negative/--

Ratings Affirmed

Alestra S. de R.L. de C.V.
Senior Unsecured
Foreign Currency B+
Recovery Rating 3