Small telcos will suffer: Fitch

The six smallest telecom operators in India, along with state-run operators, will continue to suffer operating losses in 2012, according to international rating agency Fitch.

Hence, the outlook would continue to be negative for most telcos next year, it said in a report today. These companies are Tata Teleservices, Uninor, Aircel, Sistema Shyam, Etisalat and Videocon, along with BSNL and MTNL. HFCL and STel have not been counted in the report.

The reasons for the negative outlook are high competition, low average revenue per user and weak balance sheets. The reasons for the negative outlook are high competition, low average revenue per user and weak balance sheets.

The top four telecom companies will continue to be stable. The credit metrics of Bharti Airtel, Vodafone Essar, Idea Cellular and Reliance Communications should improve next year. The reasons, the agency said, were stable pricing environment, reduced capex and improved cash flow generation. The free cash flow generation should break even or even be marginally positive. Regulatory risks, however, loom large on telecom companies of all sizes.

Fitch expects the pricing environment to be stable next year, as smaller telcos will be reluctant to compete further. “There is limited scope to rationalise costs per minute, which is at an average of 30 paise per minute. Following the 2010 rate war, the voice average revenue per minute declined significantly to 40-43 paise, among the lowest of any Asia-Pacific country,” the report said.