Increased Competition, Unabated Pricing Pressure, and Elevated Debt a Major Risk for Indian Telecom Industry: ICRA

The telecom industry in India has become an ultra-competitive one in the last eight months. Reinforced competitive intensity and pricing pressures have resulted in the telecom industry’s revenue and EBIDTA declining by an estimated 5 percent and 10 percent respectively during FY2017. The impact on the telecom industry’s financial health was visible in the second half of FY2017 post-Reliance Jio’s launch. Rating agency ICRA estimates the situation to remain weak during this fiscal as well, as the pricing pressures show no signs of abatement.

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Since the launch of Reliance Jio, with constant downward calibration of prices, the gross ARPU levels for the ICRA sample (Bharti Airtel, Reliance Communications and Idea Cellular) have fallen by around 15 percent. The data subscriber base for the ICRA sample declined from 151.8 million as of September 2016 to 127.9 million as of March 2017, with Reliance Jio gaining most of these subscribers. This, coupled with the fall in realisations, resulted in a decline in gross ARPU from Rs. 181 for H2 FY2016 to Rs. 159 for H2 FY2017 for the ICRA sample.

Over the longer term, industry ARPU needs to increase for better financial health as also to service debt, manage the steady capex rate, and generate a return on the investments. ICRA estimates that the industry ARPU needs to increase from Rs. 150 per month currently to over Rs. 200 per month. However, this would take some time, driven by the conclusion of consolidation transactions which are currently in approval stage, higher usage by subscribers (mainly data usage), and strengthening of market positioning of the larger players.