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Telecom sector recovery to get delayed due to intense competition, says ICRA

December 04, 2018

According to ICRA Limited, the recovery of the Indian telecom sector, on the back of restoration of pricing power is going to be delayed because the intense competition in the sector is expected to carry on. Additionally, the recent rupee depreciation along with higher diesel prices would also delay the sector’s recovery.

Further, the likelihood of spectrum auctions which would lead to more spending would be an additional financial burden for the telecom industry.

Moreover, the telecom industry’s debt has remained elevated primarily due to lower organic cash flow generation and consistently high capital expenditure (capex) requirements. However, as per ICRA the telecom sector’s debt is expected to reduce from an estimated Rs 4.7 trillion in March 2018 to Rs 4.2 trillion. This fall could be attributed to the monetisation of tower assets and promoter support.

Meanwhile, the capex rate has remained high for most of the operators in the past few quarters, due to expenditure on network expansion, technological upgradation and adding fibre networks.

ICRA also stated that the current pricing turbulence has led to a decline in revenue and profitability. The blended average revenue per user (ARPU) – from voice and data services – is estimated to fall from Rs 169 in the first quarter of FY17 to Rs 116 in the first quarter of FY19 from Rs 169. On the other hand, the industry’s adjusted gross revenue may decline to Rs 255.8 billion during the period under consideration.

In a nutshell, ICRA has maintained a negative year-end outlook for the sector as the stabilisation and pricing restoration are not imminent because competitive headwinds remain strong with most of the operators looking for greater entrenchment or a push for higher customer market share.

 
 

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