Further, it said that despite some easing of competitive intensity, it is still some time to go before the tough competition recedes.
This is because it is unclear whether the next round of tariff hikes would be across the industry or limited only to telcos facing adjusted gross revenue (AGR) payment.
“…ARPU improvement and further tariff hikes are on the cards, given the fact that telecom service providers are required to make sizeable payouts in terms of AGR liabilities, spectrum purchase, regular revenue share to the government and auction instalments (which start from fiscal 2023),” Icra said in a statement.
Hence, a sustainable and sizeable average revenue per user (ARPU) expansion is critical.
“While the industry still grapples with elevated debt levels and weak debt coverage metrics, the last fiscal has witnessed some respite in terms of steady ARPU improvement driven mainly by the tariff hikes implemented in December 2019, the deleveraging measures are undertaken by the telcos, and moderation of capex intensity,” said Anupama Arora, Vice President and Sector Head, Corporate Ratings, Icra.
And though clarity has emerged around the AGR issues, the relatively short timeframe allowed by the Supreme Court acts as a “dampener”, Arora said.
The battlefront among the telcos has shifted to the postpaid segment, where Reliance Jio has introduced new tariff plans, with lower rentals and higher content offerings.
Just how this would impact competition remains to be seen, since typically India is primarily a prepaid market, while many countries are dominated by postpaid connection, it observed.
The postpaid segment offers inherent benefits of higher ARPU and greater customer stickiness. While the proportion of the postpaid subscribers in total subscriber base is less than five per cent, its contribution to revenues and profitability is close to 12-15 per cent, making it a lucrative segment for the telcos.
Jio upping the ante in this segment can impact the ARPUs and profitability of the incumbents.
“Notwithstanding the competitive intensity, the telcos have been able to improve the ARPUs given the tariff hikes implemented in the past and consistent upgrades of 2G subscribers to 4G. This has resulted in improvement in the industry revenues and AGR in Q1FY2021,” Arora said, adding that Icra expects the trend to continue.
The telcos will dial tariff hikes again and the ARPUs are expected to reach Rs 220 in the medium-term. With this, the industry revenues are expected to improve by 12-15 per cent per annum for FY2021 and FY2023, Arora noted.
The industry debt declined to Rs 4.4 lakh crore as on March 31, 2020, following deleveraging measures undertaken, but going forward it may rise once more before moderating.
“The spectrum auctions are anticipated in the current fiscal, which along with the addition of AGR liabilities in the debt is likely to result in further increase in debt to Rs 4.9 lakh crore as on March 31, 2021, before it moderates to Rs 4.65 lakh crore as on March 31, 2022,” the rating agency said.
The telcos will have to find avenues to cut debt, exploring monetisation of assets like fibre, data centres, in addition to the consistent improvement in the cash flow generation to consistently upgrade the networks and be future-ready, Ankit Jain, Assistant Vice President, Icra said.
“Given the precarious position of the balance sheet of the industry, India is likely to give a miss to the 5G call for some time. Further, the industry is in the process of a transformation from being a plain vanilla voice and data service provider to more of technology and content-driven industry and a leaner balance sheet will play a major part in this transformation,” Jain said.
Credit: economictimes.indiatimes.com
