According to the global rating agency, Fitch the telecom industry in the country is largely weighed down by regulatory overhang on the sector.
The rating agency has maintained a negative outlook for the telecom sector in 2013. As per Fitch, the outlook for the sector is negative on account of expected weaker balance sheets due to regulatory payments made for re-acquiring licences and due to the continuing limited ability of operators to raise tariffs in a highly competitive market.
The rating agency is of the view that the high interest costs, and capex required to meet growing data traffic and voice coverage, will result into low free cash flow margins for the operators during 2013 (around two to four per cent), which might be insufficient to pay for regulatory payments.
It further says that the government?s decision to change its spectrum-allocation policy from a fixed-cost regime to an auction of all existing and future spectrum assets will significantly raise the cost of licences and spectrum for the operators. This will further weaken the credit metrics of most of the operators, which are funded by debt. The rating agency notes that the country?s top-four operators by revenue market share – Bharti Airtel Limited, Vodafone India Limited, Idea Cellular Limited and Reliance Communications Limited will have to pay significant amounts as one-time fee for excess spectrum (above 4.4MHz), spectrum re-farming and future spectrum auctions.
Further, Fitch believes that the ongoing industry consolidation is unlikely to reduce overcapacity in 2013, as the market will remain competitive enough to prevent any sustainable rise in tariffs. Also, the top-four operators? earnings before interest, taxes, depreciation, and amortisation margins are unlikely to improve much, due to a combination of factors including competition, high initial 3G network costs and low average revenue for new users for new users. Fitch expects operator revenues, to rise only by the mid-single digits in 2013, primarily with the subscriber growth which it expects to go up by an average monthly net addition of three to five million.
