Moody's Cuts Verizon Ratings

The company protests, but investors have been worried about a big fiber bill.
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Moody's downgraded Verizon (VZ) - Get Report Wednesday, echoing investor concerns over runaway spending at the big New York phone shop.

Moody's cut Verizon's long-term credit rating Wednesday to A3 from A2. The telco's short-term credit slipped a notch to Prime-2 from Prime-1.

The credit rating agency cited the costly fiber expansion Verizon will be paying for over the coming years as the key reason for the downgrade. After several years of reducing its obligations, Verizon has been stuck in the $40 billion range this year.

Verizon responded to the downgrade Wednesday.

"We believe our credit metrics are strong both on an absolute basis and relative to our peers," said CFO Doreen Toben in a press release.

But Verizon hasn't offered many soothing words about the estimated $20 billion price tag attached to the fiber project. In fact, investors have been left almost entirely in the dark about the company's progress.

Based on estimates and analysts' cost projections, Verizon will have spent $3.2 billion on Fios work over the past two years. And assuming the company has 150,000 subscribers by year-end, that would mean Verizon paid about $21,000 for each new customer.

Moody's says it sees Verizon taking on about $3 billion more in debt next year as it merges with

MCI

(MCIP)

. Notably, Moody's upgraded MCI in anticipation of the merger. Though MCI debt is still junk, Moody's raised MCI's rating to Ba3.

Verizon shares rose a dime to close at $30.64, and MCI gained 2 cents to close at $19.73 Wednesday.