India’s nationally owned and six smallest private telecom companies will continue to suffer operating losses in 2012, according to a report released Thursday by global ratings agency Fitch Ratings.
The agency said the losses will be as a result of high competition, low average revenue per user (ARPU) and weak balance sheets.
“The nationally owned telcos will continue to be saddled with high employee costs,” the report said.
“Although the high level of competition is leading to very weak financial performance for most Indian telcos, Fitch believes that the credit outlook for the top-four telcos is stable,” said Nitin Soni, associate director in Fitch’s Asia-Pacific telecommunications, media and technology team.
In its report, Fitch said that it expects that smaller telecom companies will be reluctant to compete further on price next year, given the limited scope to rationalize costs per minute, which average $0.01 per minute.
“Following the 2010 tariff war, voice ARPMs in India declined significantly to around $0.01, among the lowest of any Asia-Pacific country,” the report said.
Broadband tariffs will come under pressure during 2012 with the launch of broadband wireless access (BWA) services by Reliance Industries Ltd., the agency said.
“The agency anticipates subscriber growth to continue at its current rate of about 7 million to 9 million per month in 2012, a significantly slower pace than the 15 million per month achieved during the price-war year of 2010. Revenue growth will be driven mainly by voice revenues. Although data is not yet a significant income source in the Indian market, active subscriber penetration is just 50.7%, and voice services will therefore continue to offer strong growth prospects,” the report states.
3G/BWA Services:
Fitch expects broadband services to make a meaningful contribution only from 2013. Despite initial 3G service rollouts starting in Q111, the up-take has been weak due to telcos‟ deferral of further investment and the lack of cheaper 3G handsets and local content. However, Fitch anticipates broadband penetration to grow significantly in 2012, albeit from a small base, owing to progressive rollout of 3G services and the start of BWA services.
Fitch also notes that telcos are more likely to follow state-specific 3G pricing plans rather than adopt pan-India plans. Moreover, it is unlikely that India will have unlimited (“all you can eat”) plans, which often create network congestion and lead to higher capex requirements.
National Telecom Policy 2011:
Fitch expects that introduction of the NTP (expected to be announced in January 2012) and Spectrum Act in 2012 should clarify the key credit issues of spectrum re-farming and the imposition of its renewal fees. However, policy is too unclear in these areas for Fitch to be able to fully assess the likelihood or the potential credit impact.
The changes proposed in the draft NTP could lead to higher competition by allowing spectrum-sharing and VoIP services. However, the agency sees 2012 as a year of reform implementation, and the effect of such reforms will only be felt in the medium to long term.
