Current Low Telecom Tariffs Unsustainable, Set to Rise in 2018 as Jio Switches Focus: Fitch Ratings

The current low telecom tariffs are unsustainable, and are expected to rise in 2018, as Reliance Jio switches its focus from gaining customers to making reasonable returns on its USD31 billion investment in the sector, Fitch Ratings said, adding that Indian telecom industry’s revenue growth is likely to be in the mid-single-digits in 2018, after a decline in 2017. The outlook for the Indian telco sector is improving, which could mean that the results in the quarter ended December 2017 marked a low point for Bharti Airtel and other incumbents.

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“We revised the sector outlook to Stable in 2018 from Negative in 2017, as we expect competition to ease now that industry consolidation is all but completed. Three large telcos – Bharti, Jio and merged entity of Vodafone-Idea – have emerged from the shake-out. Their combined revenue market share will increase to around 90% in 2018, from 80% in 2017, as smaller telcos continue to exit,” Fitch Ratings said.

The agency said that Airtel’s revenue and EBITDA would rebound in FY19 driven by a likely improvement in the blended average revenue per user (ARPU) in the Indian mobile sector as data usage and tariffs rise.

Airtel’s FY18 revenue and EBITDA are likely to decline by 10% and 15%, respectively, reflecting unprecedented competition that pushed down blended ARPU by 29% to an all-time low of Rs 123 in the quarter ended December 2017. The slide in ARPU was also driven by the regulator’s decision to reduce voice mobile termination rate by 57% and was despite a 37% increase in voice usage per user per month and a fivefold increase in per-user data usage to 5.3 GB per month.