According to Indian Ratings and Research (Ind-Ra), the accelerated pace of 5G deployment by telecom operators is likely to increase the capex intensity in the next 12 months, and with the 5G services not being offered at a premium, the return on capital employed (RoCE) for telcos may see a limited upside. 

The company added that it does not foresee broad-based tariff hikes materialising in the near to medium term, given the heightened competition amid telcos’ recent attempts to acquire high average revenue per user (ARPU) customers and aggressive 5G rollout plans. However, Ind-Ra expects ARPU to grow organically at around 5 per cent year-on-year in the fiscal year 2024 due to likely tariff hikes resulting from pricing action in the low tariff bands and subsequent subscriber churn, as well as due to rising composition data users. 

Further, Ind-Ra said that Reliance Jio and Bharti Airtel may continue to acquire market share from Vodafone Idea Limited (Vi), especially in the high ARPU customer base. Both Jio and Airtel plan to complete their urban 5G coverage in the summer this year, and conclude pan-India rollout by December 2023 and March 2024, respectively. For the telecom industry, Ind-Ra has maintained a neutral outlook for the fiscal year 2024. 

Meanwhile, for the telecom tower industry, the report said that the outlook remains deteriorating due to its dependency on Vi, rising receivables, and the benefits of 5G rollout being back-ended. As per the study, the impact of delayed receivables on tower companies’ credit profiles should be much worse, given their inability to delay fuel payments and lack of visibility on the recoverability of pending dues (large provisioning done over the past year). Continued capex intensity and aggressive dividend payout policies remain additional negatives. The report mentioned that Indus Towers has already written off about Rs 50 billion of receivables due from Vi, contributing over 4 per cent to Indus Towers’ total revenue, in nine months ended December 2022 and has collected only part of the recurring dues from Vi. Therefore, the ability of Vi to raise funding remains a key monitorable for tower companies. 

Lastly, Ind-Ra has a neutral outlook for telecom equipment manufacturers due to a supportive regulatory environment such as the current production-linked incentive scheme.