Fitch gives negative rating for Indian telecom sector

telecom tower in India rural area
Leading rating agency Fitch on Friday downgraded Indian telecom sector to negative from stable for 2016, as top four operators slug it out in a fiercely competitive market.

“Entry of Reliance Jio into the telecom service market ┬áin December will force the top four operators to reduce data tariffs 15-20 percent in face of fierce competition,” said the US-based Fitch Ratings in a report.

As competition among top telecoms – Bharti Airtel, Vodafone India, Reliance Communications and the state-run BSNL intensifies, voice average revenue per user (ARPU) is also likely to be lesser owing to rising data usage.

“We expect competition to intensify as Reliance Jio of Reliance Industries enters the market with cheaper and faster data tariff plans backed by sufficient spectrum and access to funds,” the rating agency noted.

As credit capacity of the top four service providers will be under pressure, they will require more capital to sustain their operations.

“The blended monthly ARPU is likely to dip 5-6 percent to Rs 160 in 2016 from Rs 170 in 2015 on lower data tariffs despite rise in its usage,” the report said.

Though a late entrant, Jio is set to offer cheaper and faster data services using 4G speed in the 800MHz spectrum (air waves) in 10 circles and 2300-1800MHz in 22 circles across the country.

“The industry revenue is estimated to grow in single digit, with data services contributing more than voice and subscriber base,” the report pointed out.

Proliferation of smart-phones, massive subscriber base, lower data tariff and improved quality content will increase revenue from data to grow 25-27 percent as against 18-20 percent this year.

“The operating margins of the four telecoms will, however, be under pressure and reduce by one-two percent from 35 percent in 2015, the report added.