More reports on: Bharti Tele-Ventures Ltd / Bharti Airtel, Idea Cellular, Reliance Jio Infocomm

RJio squeezing Airtel, Voda, Idea earnings: Ind-Ra

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19 February 2016

Rating agency India Ratings and Research (Ind-Ra) has downgraded the outlook for the Indian telecom sector from `stable-to-negative' in the coming fiscal (2016-17) as it expects Reliance Jio's (RJio) entry into 4G space to hit the market share of existing operators.

The rating agency also pointed to increasing competition among existing players for a larger chunk of the $g telecom space amidst consolidation in the industry.

"India Ratings and Research has revised its outlook on the telecommunications services sector for FY 16-17 from stable-to-negative," the rating agency said, adding that the launch of Reliance Jio will ruffle the competition and will eat into the market share of existing players.

"The rating agency expects the launch of Reliance Jio (RJio) to intensify competition in the telecom space, which will squeeze the market share, earnings before interest, taxes, depreciation and amortisation (EBITDA) margins and credit metrics of incumbents," Ind-Ra said in a statement.

According to the rating agency, competition will increase further as RJio squeezes market share out of the existing pool of subscribers currently being serviced by incumbent operators.

Data market will be the first to face the impact of increasing competition, leading to a decline in data average revenue per users, Ind-Ra said.

The impact is already evident with a decline in revenue realisation of Airtel and Idea Cellular by 4.5-5.5 per cent on a quarter-on-quarter basis, the agency pointed out.

"Ind-Ra believes this price decline was in anticipation of the RJio launch, and, therefore, expects a further softening of data tariffs in the financial year 2016-17," the agency stated in a report.

According to Ind-Ra, Reliance Jio's launch of 4G services is a major threat to data tariffs and it could disrupt data pricing, leading to data realisations softening by 30-40 per cent by FY17 from the current levels.

"A steep decline in data realisations coupled with gradual growth in consumption volumes could lower the data ARPUs. Data ARPUs have been growing, led by growth in per capita volumes consumed, which is offsetting the declining data realisations," the ratings agency said.

Relance Jio's proposed 4G launch will squeeze the market share, EBITDA margins and credit metrics of Bharti Airtel, Vodafone India and Idea Cellular, it said, adding that RJio will look to unsettle some of the large operators in their prominent geographies, leading to a re-distribution of the market share, which is currently concentrated among the top three operators.

Airtel is the market leader of the Indian telecom market with revenue market share and subscriber market share of around 30 per cent and 24 per cent, respectively. Idea has been witnessing robust growth, thus catching up to Vodafone, which is at the second place.

The three operators together cater to around 60 per cent of the total telecom subscribers while they hold more than 67 per cent of the revenue market share.

The agency said voice revenue is likely to remain moderate in FY17 on stagnant minutes of usage (MoU) and further competition in call realisations. It expects data revenue to remain stagnant on a 30-40 per cent decline in data realisations/megabyte in FY17 driven by RJio's launch, while support from data consumption growth to data average revenue per user will be gradual.

The operators' debt profile will deteriorate in FY17 as the agency expects them to incur high capex on network expansion and acquisition of additional spectrum through trading, largely to compete with Reliance Jio.





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