Country’s top four telcos--Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communication, will see their 2016 credit profiles under pressure as Reliance Jio’s entry will curb the rise in data average revenue per user (ARPU), according to Fitch Ratings.
Notwithstanding the rising data usage, the industry blended tariff will fall by 5%-6% as voice ARPU will continue to fall due to cannibalisation by data and blended monthly ARPU will dip by 5-6% to around Rs 160.
The incumbents will compete on price with Reliance Jio, which is likely to offer cheaper data tariffs to build market share. The top-four telcos will generate minimal free cash flow (FCF) due to higher capex and flat EBITDA. The 2016 industry capex/revenue could rise to 19%-20% as companies invest to meet the challenges of fast-growing data traffic and the new competitor in Reliance Jio.
“We expect industry revenue to grow by the low-single-digits (2015: 9%), driven solely by data services as voice matures and subscriber growth slows. Data's contribution to revenue will rise to around 25%-27% as data traffic will double -aided by the proliferation of cheaper smartphones, lower data tariffs and improving content availability,” the rating agency said.
The top four telcos' average operating EBITDA margin will narrow by 100bp-200bp (basis points) owing to pricing pressure on the higher-margin data services and a rise in marketing spend as data competition rises.