This Telecom Gets a Moody's Lift


TW Telecom (NAS: TWTC) must be doing something right during our current economic malaise for Moody's Investors Service to boost its credit rating even one notch. It is now at Ba3, still three steps down from investment grade, but the trend is promising.

Moody's upgraded the local-exchange carrier despite poor third-quarter earnings that fell 9.2% from the same period last year. Moody's enthusiasm came from the almost 28% rise in the company's operating income.

Just two months ago, Standard and Poor's Ratings Services also raised TW Telecom's credit rating one notch. Again, this was an upgrade that came in spite of the loss of a large tax credit that caused second-quarter profits to plunge. But, again, revenue growth was strong at 6.8%

TW Telecom has become the third-largest Ethernet port provider in the U.S., serving close to 40% of the Fortune 1000 companies and bringing its fiber lines to 15,000 buildings. Only AT&T (NYS: T) and Verizon (NYS: VZ) lead TW Telecom in providing Ethernet service. Together, these three companies provide half of all retail Ethernet ports. Right behind TW Telecom are Cox, XO, Qwest, Time Warner Cable (NYS: TWC) , and Level 3 (NAS: LVLT) .

TW Telecom has two main risks. First, its main moneymaker, providing business services to smaller customers, has become more attractive to larger telecoms and cable companies.

Second, even though it can connect directly with some of its customers, it does lease part of its network from other companies, most significantly AT&T and Verizon. Any regulatory changes that could inflate line charges, or any significant changes in the competitive landscape through mergers -- such as AT&T's proposed acquisition of T-Mobile -- could affect access pricing and hurt TW Telecom's margins.

The company is in a decent place financially, with $469 million in cash and cash equivalents and interest payments on its $1.34 billion of debt expected to total $68 million over the next 12 months.

With a little help...
TW Telecom seems to be heading in the right direction, but as to skyrocketing growth in the company's future, Chairman and CEO Larissa Herda told analysts during the latest earnings conference call: "With regard to aspirations on double-digit revenue growth, we absolutely aspire to that, but ... we're going to need a little more help from the economy."

I like TW Telecom's chances and am giving it a thumbs-up in CAPS.

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At the time thisarticle was published Fool contributorDan Radovskyowns shares of AT&T. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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