Outlook for telecom sector not so rosy in FY17

India Ratings and Research (Ind-Ra) has revised its outlook on the telecommunications services sector for FY17 to stable-to-negative, from stable. The agency expects the launch of Reliance Jio Infocomm Limited (RJio) to intensify competition, which will squeeze market share, Ebitda (earnings before interest, tax, depreciation and amortisation) margins and credit metrics of incumbents. Ind-Ra expects voice revenues to moderate in FY17 on stagnant minutes of usage (MoU) and further competition in call realisations.

The agency 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 average data revenue per user will be gradual.

Operators' debt profile would 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 RJio.

Ind-Ra expects competition to intensify as RJio contends for market share out of the existing pie of subscribers who are being serviced by incumbent operators.

The data market would be the first to face the impact of increased competition resulting in a decline in average data revenue per users. Ind-Ra expects data tariffs to see a major correction due to the launch of RJio, while the benefits from higher data volumes as well as subscriber growth would be back-ended.

Data realisations/megabyte declined by 4.5-5.5 per cent quarter-on-quarter (q-o-q) in the third quarter of FY16 for the top two listed entities, Bharti Airtel Limited and Idea Cellular Limited. Ind-Ra believes this price decline was in anticipation of the RJio launch, and therefore expects a further softening of data tariffs in FY17.

Ind-Ra said 8-10 per cent q-o-q growth in volume of data consumption wouldn't be sufficient to support the average data revenue per users, which would therefore moderate in FY17. Ind-Ra expected voice revenue to decline in FY17 due to market maturity and competitive pricing.