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Telecom industry's revenue to increase by 10 per cent by March 2019, says ICRA ratings

January 12, 2018

According to ICRA ratings, the Indian telecom industry's revenue and earnings before interest, tax, depreciation and amortization (EBITDA) are expected to increase by 10 per cent and 42 per cent, respectively, in 2018-2019 but would still be lower than 2016-2017 levels. While the industry revenue for 2017-2018 is estimated to decline by 13 per cent year on year and EBITDA to decline by 34 per cent, the industry is expected to recover from 2018-2019 onwards on the back of a consolidated structure, better pricing power and data usage with greater price-inelasticity, the agency said. Further, ICRA pointed that the industry debt levels, estimated at Rs 4.7 trillion as on March 2018 are expected to reduce to Rs 4.2 trillion as on March 2019, with monetisation of tower assets and promoter support being main drivers. However, it added that the debt protection metrics estimated as debt/EBITDA ratio will continue to remain weak at 7.2x as of March 31, 2019.

The ratings agency noted that there has been a rush in the consolidation activity in the recent past, with deals including the impending merger of Vodafone India and Idea Cellular, merger of consumer mobile business of Tata Teleservices Limited into Bharti Airtel, proposed sale of assets by Reliance Communications to Reliance Jio Infocomm Limited and the acquisition of Telenor India by Bharti Airtel. These transactions, assuming they fructify, herald the emergence of an oligopolistic industry structure with larger and relatively stronger players, the agency said. In addition, the industry has seen a consistently increasing data usage pattern which should give some price-inelasticity.

The launch of RJIL led to an intense competition in the market, and the industry itself has witnessed a phase of turbulence during the last few quarters. ICRA stated that these factors, along with reduction in interconnect usage charge would continue to weigh down the financial performance of the industry in 2017-2018. However, it added that there have been some silver linings for telecom operators such as expedited consolidation and increased data stickiness.

These factors would lead to gradual restoration in pricing power of the remaining operators, which should translate into improvement in financial position in 2018-2019. Further, the industry's concerns would remain in the near term despite the long term upsides as the competitive intensity is unlikely to abate.

Further, ICRA stated that the industry structure is undergoing material transition with a few large players holding significant market share. As the pricing plans of various operators exhibit a degree of convergence, the range of average revenue per subscriber across subscribers would narrow. Further, data segment will present more opportunities for the sector and the operators would focus on better content offerings. Having said that, the requirements for spectrum would also increase going forward and another round of spectrum auction cannot be ruled out in the medium term, the agency added.


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