June 16, 2009 / 11:25 AM / 10 years ago

UPDATE 1-Barclays downgrades US telecom services sector, AT&T

June 16 (Reuters) - Barclays Capital downgraded the U.S. telecom services sector to “neutral” from “positive” and said growth for many companies in the sector would be subdued after outperforming the broader market over the last three years.

The brokerage said telecom services was a late-stage cyclical sector and most of the companies in its universe did not start to feel the impact of the slowing economy until late in 2008.

“Given the anemic employment outlook, we believe the growth characteristics of telcos with significant exposure to the enterprise/wholesale/small and medium enterprises (SME) segments could lag the broader market for some time to come,” analyst Thomas Seitz said.

“It’s likely that the contracts being extended and signed today possess incremental price concessions and carry lower margins,” the analyst said.

Given the lengthy install times associated with many telecom contracts, this could elongate revenue recovery cycles, and pressure results in 2010 and beyond, he added.

He downgraded telecom operators AT&T Inc (T.N) and tw telecom inc TWTC.O to “equal-weight” from “overweight”, but kept his “overweight” rating on Verizon Communications Inc (VZ.N), the No. 1 U.S. mobile service.

Seitz said Verizon stands ahead of AT&T because of the consistent performance of Verizon’s wireless business and the ability to generate material synergies from its ALLTEL integration.

For the alerts, double-click on [ID:nWNAB0028] (Reporting by Mary Meyase in Bangalore; Editing by Aradhana Aravindan)

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