Indian telecom sector to see stable growth

BANGALORE: Fitch Ratings, a rating agency, today said in a special report that it maintains a stable outlook on the Indian telecom sector, based on the expectation that revenue growth would be supported by strong wireless monthly subscriber addition.

The report titled "Indian Telecom Sector, Stable Outlook with Declining Margins" said that there has been strong monthly wireless subscriber addition (around 8-10 million during FY08-FY09), and with overall teledensity still moderate at about 39 per cent at end-May 2009, there are sound growth prospects over the medium term, said a press release.

It also added that profitability is likely to fall due to growing number of lower-end users, network expansion costs, increased competition and regulatory pressures.

Fitch expects the subscriber growth to be at a CAGR of 25 to 30 per cent over the next three years to FY12 as against a CAGR of 44 per cent during FY07-FY09.

Wireless subscriber addition is mainly from Class B and C circles leading to lower average revenue per user (ARPU) and minutes of usage (MOU), while the lower ARPU has been fueled by falling tariffs due to high competition and reduced mobile termination charges, the release added.

Fitch expects that following the entry of new players (resulting in nine to 10 players operating in each circle) the industry would be pushed towards consolidation. The proposed auction of 3G licences and the introduction of mobile number portability (MNP) are also likely to increase competitive intensity.

The report mentioned that the new operators would find it difficult to garner significant share in the crowded wireless market.

It added that the prospects for the Indian telecom infrastructure industry are robust - due to rising wireless usage, the likely preference of new operators to lease existing infrastructure and better efficiencies in rolling out rural networks.

It also highlights the financial trends of the private and state-owned telecom companies. The private telecom operators' revenue growth was strong in FY09, but has experienced a decline in EBITDA margins on account of falling ARPU and increased spend on subscriber acquisition and retention cost.

The revenues and EBITDA of state-run Bharat Sanchar Nigam Ltd. (BSNL) and Mahangar Telephone Nigam Ltd. (MTNL) have declined, reflecting the continued decline of fixed-line subscribers and falling wireless ARPUs more than offsetting the marginal rise in wireless subscriber base, the release added.

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