Telecom industry is expected to recover from FY2019: ICRA

FY2018 revenue in telecom industry is estimated to decline by 13 percent and restoration of pricing power, and increased data usage are expected to result in a steady improvement from FY2019: ICRA

    According to the new report by ICRA, the telecom industry is expected to recover from FY2019 on the back of a consolidated structure, better pricing, power and data usage with greater price-inelasticity.

    Telecom industry is expected to recover from FY2019: ICRA

    Harsh Jagnani, Sector Head & Vice President - Corporate Ratings, ICRA said, "There has been a rush in the consolidation activity in the recent past, with deals including the impending merger of Vodafone India and Idea Cellular, merger of consumer mobile business of Tata Teleservices into Bharti Airtel, proposed sale of assets by Reliance Communications Ltd. to RJio, and the acquisition of Telenor India by Bharti Airtel. These transactions, assuming they fructify, herald the emergence of an oligopolistic industry structure with larger and relatively stronger players. In addition, the industry has seen a consistently increasing data usage pattern which should give some price-inelasticity."

    The report said that during the last few quarters, the Indian telecom industry has witnessed a phase of turbulence, with the launch of operations by Reliance Jio Infocomm Ltd. (RJio) leading to intense competition, pricing pressures and the decline in revenues and profitability. These factors, along with the reduction in Interconnect Usage Charge (IUC), would continue to weigh down the financial performance of the industry in FY2018. But there have been some silver linings, namely expedited consolidation and increased data stickiness. These factors would lead to gradual restoration in pricing power of the remaining telcos, which should translate into improvement in financial position in FY2019.

    ICRA believes that believes that the concerns would, however, remain the near term despite the long-terms upsides as the competitive intensity is unlikely to abate. Telecom operators such as Bharti Airtel and others will continue to seek higher market share, especially from the smaller/existing ones, to achieve improved visibility of returns.

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    Furthermore, it added that the FY2018 revenue is estimated to decline by 13 percent and EBITDA to decline by 34 percent. After that, benefits of consolidation, restoration of pricing power, and increased data usage are expected to result in a steady improvement from FY2019.

    Jagnani adds, "The industry structure is undergoing material transition with a few large players holding significant market share. As the pricing plans of various operators exhibit a degree of convergence, the range of ARPS across subscribers would narrow. Further, data segment will present more opportunities for the sector and the telcos would focus on better content offerings. Having said that, the requirements for spectrum would also increase going forward and another round of spectrum auction cannot be ruled out in the medium term."

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