Top telcos to control 75-85% of industry revenue in 1-2 years: S&P

KOLKATA: India’s telecoms sector will see consolidation with the top-three telcos -- the Idea-Vodafone combine, Bharti Airtel and Reliance Jio Infocomm -- eventually controlling 75-85% of industry revenue, but it could take a year or two before the dust settles, S&P Global Ratings said Tuesday.

This, according to the global rating agency, means (telco) “margins and cash positions will be further challenged before they get better”.

S&P Global Ratings expects (telco) leverage levels to remain elevated and margins to narrow, which, in turn, will result in industry revenues declining 5%-10% in the current fiscal through March 2018.

But it said revenue declines for the top three players – Idea-Vodafone, Bharti Airtel and Jio -- would be in the lower end of the range, while "smaller players like the Reliance Communications-Aircel, and the telecom arms of the Tata Group, would see sharp declines".

Jio’s aggressive tactics, it said, have been “a strain on revenue, profitability, and cashflows of all contestants in this game”.
But the rating agency expects the Mukesh Ambani-run 4G entrant to rationalise its competitive strategy at some point over the next 12-18 months and start focusing on achieving sustainable revenue and margins.

Jio’s dramatic entry last September has been particularly disruptive, in that, voice, which accounted for 80% of the sector’s revenues, was offered free for life by the youngest mobile carrier. Jio’s data rates too continue to be priced below incumbent carriers.

Small wonder, Airtel, Vodafone India and Idea have been compelled to closely match Jio’s free voice calls and low-priced data offers to hold on to customers and maintain market position.

In fact, sustained market disruption by Jio, according to experts, has hastened the need for consolidation compelling players without scale to exit. Biggies Vodafone and Idea are in the process of merging as are RCom, MTS and Aircel, while Bharti Airtel has acquired Telenor’s India business.

According to S&P Global Ratings credit analyst Ashutosh Sharma, last year's aggressive entry by Jio has stressed the telecom sector that is already battle-weary from a decade-long tussle for market share.

“Jio, through heavy discounting, has managed to grab 10% of the country's telco subscriber base in less than a year,” but costly discounting practices cannot last forever,” Sharma said.

India’s raging telecom battle, he said, has “all the ingredients of a 'Hunger Games' Movie, the combination of rivalry, power plays, and elimination of the weak, has investors, financiers, analysts, and the government on the edge of their seats”.

However, the global ratings agency feels that though India’s telcos are burning cash amid a brutal competition for market share, "the contest is in its final stages".