Telcos face another tough year: Report

Girja Shankar Kaura

Tribune News Service

New Delhi, February 20

Country’s telecom sector is set to face another tough year ahead as weak average revenue per user (ARPU) outlook, coupled with elevated capex for network and technology will continue to suppress sectoral credit outlook.

India Ratings and Research (Ind-Ra) in its latest report has although revised the outlook on telecommunication services sector to negative-to-stable for FY19 from negative in FY18, while pointing out that consolidation has opened avenues for structural improvements, it, however, says the industry pricing power is yet to return.

In a statement issued here, it said Ind-Ra believes top telcos would focus on increasing their subscriber market share than revenue market share during FY19, and tariff-based customer acquisition will spread to the lower ARPU segment using feature phones.

Return of pricing power is hazy and would be dependent upon complex factors such as RJio’s pricing strategy and consumer reaction to tariff increases.

The growth in data consumption is likely to remain high in FY19, given the sharp decline in prices and a favourable ecosystem. Broadband subscriber growth mainly stems from conversion of narrowband subscribers and growing adoption of data in the wake of digitalisation.

However, the agency expects industry revenue to remain stable in FY19, although revenue growth would be uneven across telcos. It expects revenue upside to remain challenging in FY19 for extant telcos (excluding RJio), who would face double whammy of declining data tariff and voice revenue.

However, faster data penetration and consumption could support revenue over the medium term if the ecosystem remains favourable. EBITDA margins for extant telcos (excluding RJio) will remain subdued as interconnect usage charges could be reduced further in line with the Government of India’s decision to move to zero interconnect usage charges by 2020.

Consolidation has led to sufficient spectrum availability and top telcos have strengthened their business model via acquisition of spectrum at attractive prices. FY19 may not witness active participation from telcos in spectrum auctions, the report says.