Intense competition in the domestic telecom space further fueled by the entry of Reliance Jio Infocomm (Jio) has not only impacted the revenue and margins of the operators.
Intense competition in the domestic telecom space further fueled by the entry of Reliance Jio Infocomm (Jio) has not only impacted the revenue and margins of the operators, but also the industry debt, which is expected to rise by as much as 9.75% to R4.50 lakh crore by the end of the current fiscal compared to 2015-16 fiscal.
Ratings agency Icra estimates that the total debt of the telecom industry will rise from R4.10 lakh crore in March 2016 to up to R4.50 lakh crore by March-end this year.
Icra’s sector head of corporate ratings, Harsh Jagnani said, “The big concern for the industry, the big reality is the debt levels. As of March 2016, we had pegged it at R4.10 lakh crore and we had anticipated the industry to end the year, somewhere at 4-4.50 lakh crore and it looks likely that it will end at that level. Debt repayments will remain a concern for the industry.”
He added that the industry’s debt-to-ebitda level is expected to be upwards of 5.6, driven largely by spending by operators in the October 2016 spectrum auctions.
Jagnani put the spectrum auctions as one of the major reasons for the increase in debt levels, but which was a requirement too.
“In the next two quarters we are not looking at spectrum auctions and that will give the industry some breathing space. But, in the next next 2-3 quarters the industry’s financial performance will be under some pressure and to that extent debt metrics would not improve,” he added.
Jagnani, however does not foresee the debt levels to rise on the same lines.
“It may not be the same rise (as in 2016-17). Primarily, FY17 had one auction in October 2016… Entire thing (payments for auctions) if you were to say got added to the debt, either in the form of up-front payment or in the form of deferred spectrum liability. As of now, there is no auction plan. While Ebitda levels will be under pressure, there will be some level of cash flows which will allow to at least control the debt,” he explained.
But that’s the only silver lining for the telecom industry, as Icra said it expects price competition to remain “fairly intense” in the medium term.
Besides, it also expects that over the next few quarters there will be pressure on the revenue as well as the margins.
On pricing on mobile tariffs, Icra said that rivals such as Bharti Airtel, Vodafone Idea and Idea Cellular have followed Jio in offering plans in the band of R300-350, which fundamentally caps the average revenue per user (Arpu) for the sector.
Icra, however, added that the future of two opposing forces will decide Arpu for the industry. One is that Arpu from the lower end of the subscriber base should increase driven by higher usage and the second, the high Arpu subscribers, who constitute around 10% of the total subscriber base but contribute 15-20% to Ebitda, would gravitate towards a lower Arpu band, impacting the overall revenue and profitability.
On an average, more than 60% of the subscribers have an Arpu in the range of R50– 150 followed by around 20% in R150–350 band, about 10% with over R350 and less than 1% have Arpu of more than R800.