Rcom-Sistema deal, Reliance Jio entry to accelerate consolidation in India

By November 20th, 2015 AT 1:41 PM

The Rcom-Sistema merger deal and Reliance Jio’s entry will accelerate consolidation in the Indian telecom industry, according to Fitch Ratings, which now expects five to six telecom operators to emerge from the industry shake-out as weaker ones exit the market.

3G-vs-4G-india

“Jio’s entry will accelerate consolidation as weaker ones will be further squeezed due to higher competition and their lack of profitable data services,” the ratings firm said.

Weaker unprofitable telcos including Videocon, Aircel and Tata could exit the industry as they make operating losses and lack key spectrum assets and financial flexibility to invest in data networks. Such telcos will seek M&A among themselves or trade their spectrum to larger telcos. The firm said that larger operators are looking to acquire spectrum to support rising data usage and to unclog their spectrum-starved networks. The 2016 credit profiles of the top-four Indian telcos will come under pressure amid tougher competition, larger capex requirements and debt-funded M&A.

“We believe that Rcom’s acquisition of Sistema Shyam Teleservices may signal further M&A. Any large debt-funded M&A or spectrum purchase could be negative for the top-four telcos’ credit profiles,” the firm said.

The top-four – Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications—are likely to raise revenue market share to 80%, up from 77% in 2015. These telcos will generate minimal free cash flow (FCF) due to higher capital expenditure and flat EBITDA.

The 2016 industry capex/revenue could rise to 19%-20%, up from 18% in 2015 as companies invest to meet the challenges of fast-growing data traffic and a new competitor in Jio. “We also expect telcos to invest to improve voice call quality,” Fitch said.

Fitch also reckons the sector regulator, Trai, may relax M&A norms and increase the maximum spectrum a telco can hold in any ‘circle’ (region), further improving the regulatory risks in India. The regulator’s agreement to spectrum-sharing and trading in 2015 has provided an exit route for smaller telcos.

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Jyotirmoy MannaRhishavMuthuSMSDUANE Recent comment authors
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DUANE
DUANE

High time India went back to a 5 Telecom Player market- Airtel Idea Vodafone Reliance and of course BSNL.

Muthu
Muthu

Using MTS data card in Trichy. I used to get 8 to 9 mbps speed, three months ago. Now I get only 4 mbps average, even though, I recharge with 999 monthly pack. Is this has anything to do with Rcom takeover? Why they throttle speed, when they say EVDO B, 3G plus?

DUANE
DUANE

Reliance has not even finalised the deal how can they possibly reduce the data speeds on MTS???

SMS
SMS

+1

Muthu
Muthu

Hello Duane, I am a Rcom customer. I have nothing against Rcom My main gsm mobile is Reliance 2g. For data card, I’ve MTS, for the past one year or more. MTS was very fast until two or three months ago, with up to 9 mbps, off-peak, and very good in peak time also. Suddenly, the speed has been throttled to 3.6 mbps, even in off-peak time.
I wonder, has this anything with Rcom takeover. The deal is over and Reliance announced that it has acquired MTS.

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