India Ratings and Research revised its outlook for telecommunications services to stable-to-negative from stable for 2016-17 as it expects the introduction of Reliance Jio to intensify competition, squeezing market share and operating profitability or EDBITA margins of existing players.
“Ind-Ra expects competitive intensity to increase as Reliance Jio contends for market share out of the existing pie of subscribers which are being serviced by incumbent operators. Data market will be first to face the impact of increased competition resulting in a decline in data average revenue per users,” according to a report by the ratings agency. India Ratings expects voice revenue to moderate in the coming financial year on stagnant minutes of usage due to market maturity and further competition in call realisations.
Data tariffs will also see a major correction due to the launch of Reliance Jio, it said, adding that the benefits from higher data volumes as well as subscriber growth will be “back-ended.” Additionally, the operators’ debt profile will deteriorate as they are likely to incur high capex on network expansion and acquisition of additional spectrum through trading, largely to compete with Reliance Jio.
“The competitive intensity will increase as Reliance Jio readies for a launch backed by a cash-rich parent…Reliance Jio has incurred aggregate pre-launch capex of around $15 billion (Rs 980 billion) signifying the magnitude of its potential reach and capabilities,” according to the report.
Further, spectrum is expected to drive consolidation in the sector, helped by recent guidelines allowing spectrum sharing and trading transactions within industry participants.
This will help smaller players to monetise their spectrum assets while bigger players enhance their spectrum holdings, it said.
“A few spectrum trading deals were reported in FY16 which will gain further momentum in FY17,” according to the report.
