Competition among telecom companies in emerging Asia is showing signs of easing in some markets such as India. Nevertheless, competition will remain intense in most of those markets, ratings agency Standard & Poor’s predicted in a report released today.
“The nature of competition is changing in the telecom industry in emerging Asia. With the penetration (ratio of telecom subscribers to the population) of basic wireless services at more than 70% in many markets, the focus is now increasingly on data and broadband services from voice and SMS (text messaging) services. We expect competition to significantly intensify in data and broadband over the next one to two years,” said Mehul Sukkawala, a credit analyst for S&P.
Telecom companies are seeking to capitalize on 3G and other advanced services to improve average revenue per user and gain share, the report said. New technology plays an important role in boosting telecom companies’ revenue in emerging markets.
Consolidation among telecom players is likely to diminish competitive intensity in the long term. But, for this to happen, telecom regulations that constrain consolidation would need to change, particularly in countries such as India and Indonesia.
The report says that margins on earnings before interest, tax, depreciation, amortization and rent for leading telecom companies in emerging Asia are likely to remain on average 10 percentage points stronger than that of their counterparts in developed markets for the next two years. This is because companies in emerging regions in Asia do not subsidize handset costs, use network and spectrum better, have lower costs and introduce technologies with a lag, according to the report.
“Profitability of telecom companies in emerging Asia is likely to decline in the longer term as competition heats up and companies invest significantly in costly new technologies and on increasing capacity,” Sukkawala said.
Smaller players or late entrants in markets such as India and Indonesia that have a large number of players are likely to continue to become marginalized and register materially lower profitability than incumbent carriers, the report said.
