According to India Ratings, the recent tariff hikes by operators like Reliance Communications Limited and Idea Cellular Limited is a positive indicator of consolidation in the telecom sector.
The tariff hike by these operators will result in an improvement in the financial performance and credit profile of the Indian telecom operators over the short-to-medium term. India Ratings expects that other Indian telecom operators will soon increase their call rates.
This is the second round of tariff hike following the one in mid-2011. The rating agency estimates that the average revenue per minute (ARPM) will gradually start rising after a sharp decline over the last few years due to fierce competition in the sector.
It further says that though higher revenue from the tariff increase will result in an improvement in profitability of operators, some of it will cover increasing operating costs including the recently increased diesel prices. However, the complete impact of these hikes will be visible only after a few quarters, as it will be gradually implemented across circles and subscribers.
India Ratings expects the incremental revenue from the tariff hike to easily offset its negative impact on the minutes of usage, if any. Currently, call rates in India are among the lowest in the world.
As per the data released by the Telecom Regulatory Authority of India, the mobile subscriber base stood at 913 million at the end of July, 2012 with a loss of 21 million subscribers as compared to June, 2012 due to deactivation of inactive subscribers. With an already high subscriber base, there is limited opportunity for operators to grow by adding new subscribers. India Ratings expects operators to focus on other growth levers like tariff hikes, an increase in data services usage, value-added services, among others.
As per the credit rating agency, the Indian telecom industry is going through a phase of consolidation, due to the cancellation of 2G licenses by the Supreme Court earlier this year and a fresh spectrum auction scheduled in November 2012. The number of operators is likely to reduce after the auctions, which will reduce the competition in the sector.
India Ratings maintains a negative outlook on the Indian telecom industry. According to India Ratings most the Indian operators have stretched balance sheets as they had raised debt for acquiring 3G/broadband wireless access spectrum in 2010 and/or roll-out of network. Owing to a lower-than-expected take-off of 3G services and subdued operating performance, the credit profile of most of the operators has weakened over the last few years.
