The rollout of 5G services in select pockets in India has kick-started as estimated by Investment Information and Credit Rating Agency of India Limited (ICRA Limited), post the latest round of auctions, which took place in August 2022. The full scale 5G deployment across the country will entail densification of the network and thereby sizeable investments in fiberisation. India currently has around 35 per cent of its towers fiberised and the rating agency expects that the capital expenditure (capex) required to fiberise the adequate number of towers to provide a sturdy network base would be close to Rs 3 trillion over the next 4-5 years. Further, the telecom industry has continued to report healthy improvement in its operating metrics as reflected by improvement in average revenue per user (ARPU) levels and consistent growth in telephony usage. ARPU has already crossed Rs 170 mark in first half (H1) and is likely to touch Rs 180 by the end of the fiscal. This has translated into healthy growth in industry adjusted gross revenue (AGR) over the last few quarters. However, the debt levels continue to remain high and the same further increased post the conclusion of the last round of auctions. The industry is expected to close the year with a debt of around Rs 6.3 trillion as on March 31, 2023.
Commenting on 5G rollouts, Ankit Jain, vice president and sector head, Corporate Ratings, ICRA Limited, said, “Over the last few months, the telcos have been rolling out 5G services across various cities. While the rollouts have started and customers are being upgraded to 5G network, the same is being done at no additional costs as 5G-specific plans have not been launched yet. Moreover, 5G deployment will entail densification of network and close placement of radio antennas, with possible collocation on street furniture. While small cells are likely to be the first option to start with, these need to be connected with fibre for efficient network coverage and delivery. With relatively low penetration of fibre in India, expected capex of around Rs 3 trillion would be needed over the next 4-5 years. Moreover, as several use cases are under development, it will take some time for 5G to reach adequate level of penetration. To begin with, it will be more focused towards enterprise-based use cases. Thus, unlike 4G, ICRA expects the 5G rollout to be more phased out and pockets specific.”
While in the core business, technology upgradation to 5G is likely to drive growth going forward, along with the upgradation of a large pool of subscribers to higher technology, the non-telco businesses, which include enterprise business, cloud services, digital services and fixed broadband services will also remain crucial for chartering a growth path for the industry. The core business is experiencing consistent improvement in operating metrics, however the debt levels continue to remain elevated, thereby leading to moderation in the credit metrics of the industry.
Jain further adds, “The telecom operators implemented a round of tariff hikes in Q3 FY’2022, which coupled with consistent upgradation of subscribers to 4G from 2G and increase in usage of telephony services have resulted in improvement in industry ARPU (excluding BSNL) to more than Rs 170 for H1 FY’2023 and the same is expected to cross Rs 180 by the end of this fiscal, followed by improvement to close to Rs 200 by FY’2024. The industry is expected to report a growth of 13-15 per cent in its operating income in FY’2023, which will translate into OPBDITA expansion by 18-20 per cent. Industry consolidated revenues are expected to be around Rs 2.6-2.7 trillion with OPBDITA of around Rs 1.3-1.4 trillion for FY’2023. The revenue and OPBDITA growth thereafter will be governed by next round of tariff hikes and upgradation of technology to 5G, along with growth in non-telco business.”
Amid all this improvement, the industry’s debt levels are likely to remain unwieldy, exerting pressure on the debt coverage metrics. The latest round of spectrum auctions added more deferred debt and ICRA expects industry debt to exceed Rs 6.3 trillion by March 2023, with a marginal moderation, going forward. The debt metrics continue to remain under pressure with debt/OPBDITA expected to cross 4.5 times and interest coverage to touch around 3.0 times in FY2023, before debt/OPBDITA improves to around 4.0 times in FY’2024.
