Telecom Lead India: Mobile data’s contribution to total revenue will double to 7-9 percent for Indian operators in 2013 from 4-5 percent in 2012.
Voice will remain the primary driver of revenue growth for Indian operators.
Fitch Rating today said the balance sheets of Indian telecom companies will continue to weaken in 2013 due to funding regulatory payments and re-acquire expensive licences. They will have limited room to hike tariffs due to intense competition in sector.
The outlook on Indian telecom sector is negative, according to Fitch.
Government’s changed policy on its spectrum allocation policy. The shift from a fixed-cost regime to auctioning existing and future spectrum assets will significantly raise the cost of licences and spectrum.
The consolidation may gather steam in sector but it may not bring much benefit to sector. The sector may continue to beset with over-capacity in 2013.
The top 4 operators by revenue market share – Airtel, Vodafone, Idea and Reliance Communications – will have to pay significant amounts for a one-off charge for excess spectrum (above 4.4MHz), spectrum re-farming and future spectrum auctions. Fitch believes the one-off charge and re-farming payments will occur in 2013.
The large Capex needs, weak balance sheets, and the addition of more debt as they re-acquire their cancelled licences at significantly higher prices will demand resources.
State-owned telecom companies such as BSNL and MTNL will continue to suffer operating losses due to high staff costs and low average revenue per user (ARPU) subscribers.
The market will remain competitive enough to prevent any sustainable rise in tariffs. Industry participants will come down to nine, from over 13 at the start of 2012.
The sector can afford at most only six profit-making operators in the long-term, and the industry structure needs to adjust further to raise average revenue per minute (ARPM) – currently the cheapest in the world at Rs 0.41-0.43.
EBITDA margins of four top operators are unlikely to improve much (2012 simple average of 28 percent), due to a combination of competition, high initial 3G network costs and low ARPU for new users.
Revenue in 2013 will rise only by the mid-single digits, in line with subscriber growth which should go up by an average monthly net addition of 3-5 million.
The high interest costs, and Capex for growing data traffic and voice coverage will keep 2013 free cash flow (FCF) margins low at around 2-4 percent – insufficient to pay for regulatory payments.
Fitch believes that Indian telcos’ Capex will run at around 20-25 percent of revenue to meet rising demand.