A revival of the Indian Telecom industry is likely to be prolonged as competition remains intense

According to a new report by research firm ICRA, the revival of the Indian Telecom industry is likely to be prolonged and the pressure on the cash flows of the industry may continue for a few more quarters.

The report said that this is due to the price competition which has exerted significant pressures on the Indian telecom industry in FY2018 and continues to remain intense as the larger operators are contesting to acquire subscribers of the existing telcos.

"The exit of smaller telcos has provided an opportunity for larger telcos to garner subscribers and the competition for them remains intense. We expect the migration of subscribers from the existing telcos to the continuing telcos to complete over the next six months. But until such time, the pricing levels in the industry are unlikely to witness material improvement. This can be witnessed from the fact that the trend of steady increase in Average Revenue per SIM (ARPS), led by RJio's plans, witnessed till December 2017 has since been reversed due to discounted price offerings," Harsh Jagnani, Sector Head & Vice President - Corporate Ratings, ICRA

However, recovery is expected in the sector on the back of a consolidated structure, better pricing power and data usage with greater price-inelasticity. By the end of next fiscal, the industry is likely to witness better outlook driven by improvement in pricing levels. Meanwhile, the debt levels of the industry, which would remain elevated as on March 2018, are expected to witness some reduction by way of promoter funding and asset monetization.

Furthermore, ICRA expects FY2018 revenues to decline by 13 percent and OPBDITA to decline by 34 percent. Given the current levels of competition and pricing regime, recovery in revenues and profitability is expected only by end of FY2019. But the debt levels, estimated at Rs. 4.7 lakh crore as on March 31, 2018, is expected to reduce to Rs. 4.3 lakh crore by FY2019 driven by asset monetization and increased promoter support.

To improve the telecommunication connectivity, especially broadband, in rural and remote areas of the country, Universal Service Obligation Fund (USOF) was set up in 2003, which is being funded by a Universal Access Levy of 5 percent of the Adjusted Gross Revenues of all the telecom operators. Till December 2017, the collections under USOF stood at Rs. 89,400 crores of which only Rs. 41,000 crore (46 percent) has been utilized under various projects.

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Jagnani comments on the rural broadband penetration: "A major proportion of the USOF funds are expected to be utilized for this project. BharatNet can make a significant change as it can improve the rural economy by way of improved telecom connectivity and other services such as e-health, e-education, banking, rural ATMs etc. Furthermore, it complements the efforts by the telcos towards greater fiber rollout and gives them the potential of new subscribers, and higher data and content consumption."