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India Ratings and Research (Ind-Ra) has maintained a negative-to-stable outlook on the telecom services sector for the remainder of FY19, saying weak average revenue per user (ARPU), and elevated CapEx for network and technology, will continue to suppress the sectoral credit outlook.
The firm said that the industry's pricing power is yet to return. Continued weak average revenue per user (ARPU) forecasts, coupled with elevated CapEx for network and technology, will continue to suppress the sectoral credit outlook.
"The industry will now be in the stabilization phase, with Vodafone-Idea merger finally approved and the merged entity looking to integrate its networks. The ability of the merged entity to maintain its subscriber base and derive cost and CapEx synergies will be a key monitorable. The revenue market shares of all the players will also evolve over FY19, in line with their share of 4G data subscribers (higher ARPU customers)," the firm said.
However, Ind-Ra believes the ARPU decline will be contained and will bottom out in FY19, as the current ARPUs are unsustainable from the cost and returns perspectives.
The second round of consolidation in the industry will be based on a transition from multiple to single SIM and would be a key event to watch for, once the tariffs witness upward corrections.
As over 50 percent of telcos' debt is in the form of deferred spectrum liabilities, which enjoy a fixed rate of interest, the sector is partially cushioned from the impact of tighter interest rates," it added.
On the telecom sector's debt levels - a key monitorable for industry watchers - it said that debt levels are likely to remain high due to ongoing CapEx needs. The agency does not expect the sector leverage to reduce meaningfully in FY19, as most of the debt will be refinanced.
Ind-Ra also pointed out that while India's wireless data usage has increased exponentially to almost 20 percent of the current global data usage, the smartphone penetration in India is only 33 percent.