New rules negative for telcom sector: Fitch
16 Dec 2011
Recent decisions reportedly made by India's telecoms commission will be detrimental to the sector's credit profile, Fitch Ratings believes. They include the imposition of a one-time charge on excess wireless spectrum, higher-than-expected license fees, de-linking spectrum from license fees and allowing spectrum-sharing. However, a relaxation of merger and acquisition rules will allow much-needed consolidation to occur.
Most of the measures agreed, which have been widely reported in the press but have yet to be formally announced, broadly follow the recommendations of the Telecom Regulatory Authority of India. They are likely to hurt Indian telcos, especially the larger players.
One-off fees for the big three telcos on spectrum in excess of 6.2MHz, for example, are expected to result in significant cash outflows, which will weigh on their already weak balance sheets.
A flat annual 8 per cent revenue share license fee is 2 per cent higher than originally proposed by the regulator and also includes tower companies' revenue. The original proposal of 6 per cent would have represented an improvement for telcos in total - at present the revenue share varies on a number of factors, such as service and region.
Allowing spectrum-sharing is positive in that it will reduce capex investment, but coupled with voice over internet protocol (VOIP) and de-linking spectrum from license, brings the risk of more competition, mainly from Broadband Wireless Access spectrum holders.
Relaxed M&A rules will help the sector's development. Most mobile markets struggle to support more than four players - at the moment India has over a dozen, with only the top four companies achieving solid profitability, while most others have operating losses.
