Over the last few months, the Indian telecom industry has witnessed several events such as consolidation and continued uptick in pricing by Reliance Jio, which indicate that the telecom industry is entering a stable phase after a while. This follows a long period of evolution with swift changes in contours of the industry.
“The last one year has been especially turbulent for the industry with severe competition denting its financial health, forcing some of the players to exit or merge. The emerging oligopolistic industry structure, assuming that the pending merger plans go through, is likely to be more promising – with leaner structure, better pricing power, and steady data demand. However, in the short run, the operators are likely to compete intensely to garner market share. The financial position of the industry would remain subdued in the coming quarters, reflecting issues around pricing pressure, the decline in Interconnect Usage Charges and elevated debt levels,” Mr Harsh Jagnani, Sector Head & Vice President – Corporate Ratings, ICRA said.
Reflecting the transition over the years - the gross ARPS (Average Revenue per SIM) for the industry increased from Rs. 113 in Q1FY2014 to Rs. 128 in Q1FY2016 before declining sharply to Rs. 83 in Q1FY2018. The AGR (Aggregate Gross Revenue) of the industry mirrored this trend – increased from Rs. 30,500 crore to Rs. 38,600 crore and then declining to Rs. 30,100 crore over the same periods.
Also, pressure on operating and financial metrics, coupled with elevated debt levels, which is estimated at Rs. 4.6 lakh crore as of March 2017 – and constant need for capital expenditure for network and spectrum triggered consolidation in the industry (both exits as well as mergers).
"Thus from as many as 15 players a decade back, the industry is now left with seven players, with further potential for consolidation. Consolidation not only augments the spectrum holding of the telcos who remain but also removes the fragmentation of their holdings, thereby improving the spectrum efficiency," added the report.
Elevated debt level which has been an area of concern, affecting credit profile of the players, is expected to get streamlined, with improvement in industry ARPS (RJio’s tariff plans guide an upward trajectory - the ARPS has increased from Rs. 96 for its first paid plan to Rs. 139 for the latest plan) driving organic deleveraging over longer term.
“The operators who remain in fray are expected to be on more firm footing with revenue visibility improving on account of a healthy subscriber base, better pricing power, and the fact that data has become as integral a mobile service as voice – data usage per SIM per month has grown from 60 MB in Q3FY2014 to 1,248 MB in Q1FY2018. Data is likely to be the mainstay of the industry, and the industry would need to continue investing in content, and new technologies to stay ahead of the curve. Technologies such as the Internet of Things (IoT) offer significant scale potential, and developing these is expected to keep the capex and spectrum requirements high,” concluded Mr Jagnani.