India Ratings has revised its outlook upwards on the telecom sector to stable from negative for the financial year (2014-15).
The rating agency expects the telecom sector to witness polarised operational improvements in the next financial year. It has stated that the pre-tax margins of top three operators together expanded by 391 basis points in the first six months of 2014, while the remaining operators are still incurring pre-tax losses. According to the rating agency, the outlook revision is led by strong growth potential in the emerging data business as, currently the data services penetration is only 20 per cent. The rating agency, however, has stated that the outlook could be revised downwards if operators report lower earnings and higher cash outflows. Further, imminent competition from Reliance Jio Infocomm Limited could also impact operator?s pricing power and sustainability of margin improvement, thus leading to a negative outlook. Going forward, adverse impact of litigation and unfavourable policies regarding spectrum reframing in the 900 MHz band, spectrum sharing and trading policy, and spectrum usage charges will have a negative impact on the outlook.
According to the rating agency, the number of operators in the 22 circles declined from 277 in December 2012 to 179 in June 2013. However, the top three operators – Bharti Airtel, Idea Cellular and Vodafone India – continue to gain market share. Revenue market share on the basis of adjusted gross revenues of the top three operators increased from 63.8 per cent in December 2012 to 70.2 per cent in November, while their combined subscriber base increased from 447 million to 483 million during the same period.
