'Mkt consolidation in telcos to lead to better pricing power'

India Ratings and Research today said it has maintained a stable outlook on the telecom sector for next financial year on market consolidation leading to better pricing power and improved financial profiles of operators.
The rating agency, however, said aggressive bidding in the upcoming spectrum auction and emergence of competition from Reliance Jio, which could substantially slash data tariffs, are concerns that could lead to an outlook review in the future.
"...Maintained a stable outlook on the telecommunications services sector for FY16 on market consolidation leading to better pricing power, as well as higher data consumption and improved the financial profiles of operators," India Ratings said.

Data revenues per user have almost doubled in the last one year for GSM service providers, it added.
India Ratings said it believes India's low Internet penetration and increasing acceptance of e-commerce and social media shall drive a surge in data consumption.
"This increasing user base and rising data volumes will further provide the traction for data revenue growth in FY16," it said.

Increase in competition in the voice space leading to lower average revenue per minute or disruption of the data market by new entrants thus affecting the blended average revenue per user could lead to the outlook being revised to negative on profitability concerns.

"The sector outlook could also be downgraded if the scarcity of the available spectrum across bands leads to aggressive bidding by operators in order to protect their existing business setups. In addition, the governments' inability to make available additional spectrum could have a bearing on the outlook," it added.
The agency said margins of the telecom operators in India have been supported by increasing voice tariffs and growing data consumption.
With the exit of many regional players, India Ratings said, telecom operators are left with fewer opportunities for further market consolidation.
"However, existing smaller/regional players may look to monetise their holdings given the limited scope of their operations," it said.

The sector witnessed market consolidation in 2014, with the top three telecom companies (Bharti, Vodafone, Idea) catering to more than 55 per cent of the subscriber base with a combined revenue market share of more than 67 per cent at end of first quarter FY15.
India Ratings believes that the large operators shall continue to dominate the industry with better pricing power while the regional players seem to be awaiting clarity on M&A or spectrum trading guidelines to weigh their exit options.