Fitch assigns depressing outlook for telecom sector

Fitch Ratings have cut the telecom sector outlook to negative from ‘stable’ for coming year and added that approaching entry of Reliance Jio will enhance the competition among top four telcos.
The agency forecast data tariffs to plunge by at least 15—20 per cent as incumbents race on price with Jio, which is likely to offer cheaper tariffs.
The agency expects the 2016 credit profiles of the top four Indian telecom operators to come under pressure amid tough rivalry, larger capex necessities and debt funded M&A.

Fitch said it expect the incumbent telcos to offer discounts and promotions to higher—ARPU subscribers in anticipation of Jigs entry to prevent user attrition.

Jio is likely to launch its cheaper and faster 4G—focussed data services in Q1 of 2016.

The agency expect industry revenue to grow by low single digits at 9 per cent, motivated solely by data services as voice matures and subscriber growth slows.

According to Fitch, The top four telecom companies average operating Ebitda margin will narrow by 100—200bps (2015: 35 per cent) due to pricing pressure on the higher—margin data services and a rise in marketing spend as data competition rises.

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