Fitch puts telecom sector on negative outlook ahead of Reliance Jio

Written By: GizBot Bureau

Fitch Ratings today slashed the telecom sector outlook to 'negative' from 'stable' for 2016 and said the impending entry of Reliance Jio will increase the competition and pressurise credit profiles of top-four telcos.

Fitch puts telecom sector on negative outlook ahead of Reliance Jio

The agency expects data tariffs to fall by at least 15-20 per cent as incumbents compete on price with Jio, which is likely to offer cheaper tariffs to build market share and voice average revenue per user (ARPU) will decline on lower usage as rising data usage will cannibalise voice.

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"We expect competition to intensify as Reliance Jio, part of Reliance Industries, enters the market with likely cheaper and faster data-focussed tariff plans armed with sufficient spectrum and access to funds," Fitch Ratings said.

The agency added it expects the 2016 credit profiles of the top-four Indian telcos to come under pressure amid tougher competition, larger capex requirements and debt funded M&A. Fitch Ratings though retained the rating outlook on the sector as 'stable'.

"We expect blended monthly ARPU to fall by 5-6 per cent to around Rs 160 (2015: Rs 170) due to a decline in data tariffs, which will more than offset the rise in data usage," it said. Fitch said it expect the incumbent telcos to offer discounts and promotions to higher-ARPU subscribers in anticipation of Jio's entry to prevent user attrition.

Fitch puts telecom sector on negative outlook ahead of Reliance Jio

Jio is likely to launch its cheaper and faster 4G-focussed data services in Q1 of 2016 – having invested about USD 14 billion – partly to acquire 800 MHz spectrum in 10 circles and higher-bandwidth spectrum of 2300MHz/1800MHz in 22 circles.

It expect industry revenue to grow by low single-digits (2015: 9 per cent), driven solely by data services as voice matures and subscriber growth slows.

"Data's contribution to revenue will rise to around 25-27 per cent (2015: 18-20 per cent) as data traffic will double - aided by the proliferation of cheaper smartphones, lower data tariffs and improving content availability," it said.

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The top four telcos' average operating Ebitda margin will narrow by 100-200bps (2015: 35 per cent) due to pricing pressure on the higher-margin data services and a rise in marketing spend as data competition rises, Fitch Ratings said.

The ratings agency said 2016 industry capex/revenue could rise to 19-20 per cent (2015: 18 per cent) as companies invest to meet the challenges of fast-growing data traffic and a new competitor in Jio. "We also expect telcos to invest to improve voice call quality," it added.

Source PTI

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