High competition among telecom companies amid aggressive pricing of fast data has been widespread in the Indian telecom industry for a while now. Credit rating agency ICRA said on Tuesday that a revival in the telecom sector in India is likely to be prolonged. "The pressure on the cash flows of the industry may continue for a few more quarters," said ICRA in a note. This is due to the price competition, which has exerted significant pressures on the industry in financial year 2018 and continues to remain intense as the larger operators are contesting to acquire subscribers of the exiting telecom companies, the agency added.
The entry of Reliance Industries' telecom firm Reliance Jio disrupted the sector in 2016 with free voice and cut-price data plans, driving consolidation in the industry and forcing out smaller players.
ICRA estimated the debt level of the telecom industry at Rs 4.7 lakh crore as on March 31, 2018, and expects it to reduce to Rs. 4.3 lakh crore by FY2019 driven by asset monetisation and increased promoter support.
Here are 5 things to know on what ICRA said about the stressed telecom sector:
1. Over the longer term, ICRA sees recovery in the telecom sector backed by a consolidated structure, better pricing power and data usage with greater price-inelasticity.
2. By the end of next fiscal year, the industry is likely to witness better outlook driven by improvement in pricing levels. Meanwhile, the debt level of the industry, which would remain elevated as on March 2018, is expected to witness some reduction by way of promoter funding and asset monetisation.
3. "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 exiting telcos to the continuing telcos to complete over the next six months," said Harsh Jagnani, sector head and vice president-corporate ratings, ICRA.
4. "But till 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," he said.
5. ICRA pointed out that larger telcos - Bharti Airtel, Idea Cellular, Vodafone India, BSNL/MTNL and Reliance Jio - have added 207 million active subscribers over the last 15 months. A large proportion of this, according to ICRA, has come at the expense of discontinuing telecom companies, which have lost 122 million active subscribers over this period. Amidst this market share battle, the cash-flows of the industry continue to suffer.