Reliance Jio's entry could bring down data tariffs by 20%: Fitch
11 Nov 2014
The entry of Reliance Jio Infocomm into the Indian telecom market could revive competition in the data segment, helping to bring down tariffs by at least 20 per cent, Fitch Ratings said on Tuesday.
Fitch, while ruling out a re-run of the tariff war witnessed during the 2009-2013 period, however, said Reliance Jio's push into the data business could pull down rates by as much as 20 per cent.
The rating agency did not expect Reliance Jio to corner the voice business of the incumbents on a larger scale, leaving their credit profiles intact.
"The likely entry of new telco Reliance Jio, which is part of Reliance Industries Ltd, in 1H15 will intensify competition in the data segment, and may cause data tariffs to decline by at least 20 per cent," Fitch said in its 2015 outlook for Indian telecommunications services.
Reliance Industries had proposed launching commercial 4G telecom service in 2015 entailing an investment of Rs70,000 crore.
Fitch said Jio will focus largely on data and may have a limited impact on the incumbents' core voice business, given a weak "voice-over-LTE" technology ecosystem and lack of affordable 4G-compatible handsets in India.
"We do not foresee a re-run of the tariff wars of 2009-2013, which led to a severe decline in industry tariffs," Fitch said.
Fitch expects the top four Indian telcos - Bharti Airtel Limited, Vodafone India, Idea Cellular and Reliance Communications - to increase their revenue market share to around 83 per cent by 2015 from the current 79 per cent in the $30-billion industry.
"Industry revenue will grow at a mid-single-digit rate in 2015, driven by data services. The top four telcos' 2015 average operating EBITDA margin will be mostly unchanged at 32-33 per cent (2014: 32 per cent) as a decline in data tariffs will offset a gradual rise in voice tariffs," it said.
Fitch said the top four telcos will generate a minimal free cash flow (FCF) margin due to higher capex and flat EBITDA; the 2015 industry capex / revenue ratio could rise as fast-growing data traffic requires supporting investment.
The agency said the outlook for nationally-owned telcos and weaker unprofitable telcos is negative because their business models are seen as unviable, owing to the high cost structure, weak spectrum assets and large capex requirements.
"Weaker, unprofitable operators will seek mergers amid EBITDA losses, lack of 3G/4G spectrum assets, and likely relaxation of M&A restrictions. Six operators are likely to emerge from the industry shake-out, as 10-12 operators are unsustainable" the rating agency said.
The outlook for profitable private telcos could turn negative should price-based competition return in the voice segment, which would narrow profitability, Fitch has warned.
"The sector outlook could turn negative if the Indian government auctions a smaller-than-expected quantity of telecom spectrum in 2015, which could lead to aggressive bidding by incumbents whose licences expire during 2015-2016."
