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Second round of consolidation underway in telecom industry: India Ratings

Ind-Ra said competition intensity has also reduced among the telecom companies, as evident from narrowing of tariff differentials among them.

twitter-logoBusinessToday.In | March 24, 2021 | Updated 00:43 IST
Second round of consolidation underway in telecom industry: India Ratings
Ind-Ra maintained a stable outlook for Indian telecom sector for FY22.

The telecom sector in India is on the path of recovery and a second round of consolidation has started in the industry which will transform the business model of companies, credit rating agency India Ratings and Research (Ind-Ra) said on Tuesday.

Ind-Ra maintained a stable outlook for Indian telecom sector for FY22 in view of a conducive regulatory environment and its belief that the sector will continue to show signs of recovery.

"...the second round of consolidation (Consolidation 2.0) is kicking in the industry, which will bring a transformation in the business models of telecom companies, leading to the evolution of incumbents from the providers of traditional voice-only services to complete digital solutions for households," it said in a release.

Ind-Ra said providing one or more of the services such as broadband services, cable TV services (direct-to-home), enterprise solutions, e-payment wallets/ platforms, music applications and over-the-top transmission platform in a bundled form along with traditional wireless mobile services has now become the need of the hour to ensure customer stickiness and widen the market footprint.

Besides, it said competition intensity has also reduced among the telecom companies, as evident from narrowing of tariff differentials among them.

The entry of Reliance Jio in telecom sector in 2016 had started a tariff war among the companies to acquire customers. However, the telcos have raised rates in the recent past.

Also read: Airtel adds 59 lakh mobile subscribers in Jan; Vi, Jio also gain

The increasing data usage and rising proportion of higher average revenue per user (ARPU) data customers in the overall subscriber mix indicate that, even without tariff hikes, the sector is structurally moving towards a higher-average revenue per user regime, the rating agency said.

"Ind-Ra believes that the evolution of the industry over the coming quarters will remain a key monitorable since it will determine whether the Indian mobility market will remain a 3+1 player market or will transition to a 2.5+1 player market and how the telcos will respond to the next phase of consolidation in the industry," it said.

Reliance Jio, Vodafone Idea (Vi), Bharti Airtel and state-run BSNL are the major telecom players in the country. Amongst wireless subscribers, Jio had the highest market share at 35.30 per cent as of January 31, followed by Airtel with 29.62 per cent and Vi with 24.58 per cent, as per data of the Telecom Regulatory Authority of India (TRAI). BSNL had 10.21 per cent market share.

Explaining the stable outlook for telecom companies rated by it, Ind-Ra said the entities have displayed a consistent rising market share, improvement in profitability and comfortable credit metrics.

"While the ratings of Reliance Jio Infocomm Ltd ('IND AAA'/Stable) are supported by timely financial support from its parent Reliance Industries Ltd ('IND AAA'/Stable), the ratings of Bharti Airtel Limited's (debt rated at 'IND A1+') are supported by its diversified revenue profile and sturdy Africa business. The agency believes that the financial and operational profile of its rated entities is resilient enough to adjust to the next phase of consolidation in the industry," it said.

Also read: Telecom companies allowed to install only govt-approved gear from June 15

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