Outlook negative for Indian telcos: Fitch

This article was authored by Dylan Bushell-Embling, and was originally posted on telecomasia.net.

Indian operators could be in for another rocky year in 2013, according to a report from Fitch Ratings, which has assigned the entire sector a negative outlook.

In a special report, Fitch warned that high competition and controversial changes to spectrum allocation policies will likely weaken the credit metrics of most operators next year.

The top four operators by revenue – Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications – will have to pay significant one-off charges for their “excess” spectrum above 4.4-MHz, under a government policy cleared by cabinet last month.

Combined, the four operators are in for an estimated 310 billion ($5.69 billion) in excess spectrum fees. Fitch said it believes operators will have to pay the fees next year.

Fitch added that the remaining four private telcos are likely to remain squeezed by large capex needs, weak balance sheets and, for some, debt incurred by re-acquiring their licenses at significantly higher prices following the decision to revoke the permits early this year.

State-owned BSNL and MTNL are meanwhile expected to continue to suffer operating losses due to high staffing costs and low ARPUs.

Fitch does not expect the widely-anticipated consolidation within the sector to reduce overcapacity, meaning it thinks the market will stay too competitive for any sustainable rise in tariffs.

While there are likely to be only nine industry participants by the end of 2013, down from at least 13 at the start of 2012, Fitch believes that the sector can profitably sustain six players at most.

Also needing to shift will be average revenue per minute. The sector has the lowest average rates of anywhere in the world, at a mere 0.42 rupees ($0.008), and Fitch said this is unsustainable.

Fitch predicts that the top four operators will record only a marginal growth in their ebitda margins, and revenue growth of only low single digits in 2013. While voice will remain the chief driver of revenue growth, data’s contribution to revenue is expected to double to up to 9%.

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