Investors in India’s cash-strapped telecoms market are finding reasons to be happy again as telcos strike consolidation deals. Even Reliance Jio’s decision last week to raise tariffs was cause for rejoicing, according to Reuters. Just one problem, according to industry analysts: India’s telecoms sector is still a long, long way from recovery.
According to a report posted on ET Telecom, it’s probably going to take another 12 to 18 months to get anywhere close to a turnaround point.
There are a couple of key reasons for this, the report said, starting with the likelihood that Jio – last week’s price increases aside – will stick with its aggressive subscriber-grab strategy, which means overall prices will remain at unhealthy levels for an industry struggling with nearly 5 trillion rupees (over $76 billion) of debt.
The other issue is that the dust from the consolidation deals triggered by Jio – which will pare down a once-crowded field to three major players (Airtel, Vodafone-Idea and Jio) and two fringe players (Reliance Communications and Aircel, who tried and failed to strike their own merger deal) – won’t settle for at least another year, the report says:
“Correction of the industry structure to a market comprising three large players from over 10 is a genuine positive signal, but I don’t see the telecom industry recovering in the short term (read: next 6-to-9 months) so long as Jio remains a hunter and aggressively chases customers,” said Nitin Soni, a director at global rating firm Fitch.
Such a scenario, he said, also suggests “true pricing power can return only in the medium term (read: next 12-18 months)”.
Rajan Mathews, director-general of the Cellular Operators Association of India (COAI), also remains pessimistic:
[Mathews] said the telecom services industry’s troubles “are far from over” and that it was passing through “a period of extreme turmoil” amid increasing financial stress, hyper competition, high GST rates, declining return on investment and rising cost of credit, which would only lead to the ARPU (average revenue per user) levels of the companies plunging further.
A key reason Indian telecoms can’t recover quickly is because government policies – to include stiff government levies and overpriced spectrum – are making a bad situation even worse, Mathews told ET Telecom:
Tenure extension for auctioned spectrum payments will offer an interim cash flow relief, but more needs be done by the government to address systemic issues of the industry, such as redefining the adjusted gross revenue (AGR) — revenue stemming from licensed telecom services — and reducing license fee and spectrum usage charges to 1% of AGR, said Mathews.
More here [ET Telecom]