New Delhi: Credit ratings agency India Ratings has downgraded the Indian telecom sector to ‘stable to negative’ from stable for 2016-17, the agency said in a statement on Thursday.
“The agency expects the launch of Reliance Jio Infocomm Limited (R-Jio) to intensify competition which will squeeze the market share, Ebitda (earnings before interest, taxes, depreciation and amortization) margins and credit metrics of incumbents," the statement said.
The agency expects voice revenue growth to remain moderate in the next fiscal year on account of stagnant minutes of usage (MoU) and further competition in call realisations—two key indicators for the telecom business.
“The agency expects data revenue to remain stagnant on a 30%-40% decline in data realisations per megabyte in FY17, driven by R-Jio’s launch, while support from data consumption growth to data average revenue per user will be gradual," the statement said.
Debt positions for the incumbent telcos is also expected to deteriorate in the next fiscal due to increased spending on network expansions and additional spectrum acquisition “largely to compete with R-Jio".
The increased competition, brought by R-jio’s entry, is likely to cause a decline in data average revenue per user and further lead to a major correction in data tariffs.
Data realisations per megabyte declined 4.5-5.5% quarter-on-quarter (qoq) in the last quarter for Bharti Airtel Ltd and Idea Cellular Ltd. “Ind-Ra believes this price decline was in anticipation of the R-Jio launch, and therefore expects a further softening of data tariffs in the next fiscal as 8-10% q-o-q growth in data volumes consumption shall not be sufficient to support data average revenue per users which shall therefore moderate in the 2017 fiscal," the report said.
The agency expects voice revenue to decline due to market maturity, competitive pricing and data cannibalisation.
The telcos are likely to increase expenditure in the next fiscal to upgrade or install new infrastructure for data, leading to worsening debt profiles. This is expected to get worse with the debt-driven acquisition of spectrum to augment their holdings.
“Spectrum will drive consolidation in the sector in line with the long-term roll-out plans of these operators," the statement said. However, highly competitive bidding in the upcoming auction could lead to India Ratings revising the sector outlook to negative.