Microcell Telecommunications Inc., Montreal, sold a $150 million issue of 10-year senior discount notes to help fund its capital requirements.
One of two nationwide personal communications services license holders in Canada, Microcell so far has built out its network to cover 52 percent of the domestic population, according to Moody’s Investors Service Inc., New York.
Moody’s, which accorded the new debt issue a speculative grade rating of B3, expects Microcell to achieve positive cash flow by the end of 2000.
“Nonetheless, due in part to faster than anticipated subscriber growth and lower than anticipated revenues from its wholesale business, Microcell’s capital requirements through 2002 are not yet fully funded,” M.G. Subhas, managing director, and Marcus C. Jones, senior analyst, for Moody’s corporate finance group, said in their May 17 ratings announcement. If this funding gap is resolved with a significant equity contribution, Moody’s will consider raising Microcell’s debt rating.
Microcell, which introduced a prepaid version of its Fido PCS brand late last year, has about 344,000 customers. Prepaid customers accounted for 70 percent of net new additions during the first quarter of this year, Moody’s analysts said. Furthermore, Microcell’s blended post-paid and prepaid churn rate during the first quarter was 1.6 percent.
The challenge for Microcell, Subhas and Jones said, is to keep churn rates low while stimulating airtime use by prepaid customers. Prepaid customers used, on average, only 25 percent of the airtime minutes used by post-paid subscribers. Although the costs to acquire prepaid customers are lower, these users “generate less than half the average monthly revenue compared to postpaid subscribers,” the analysts said.
