Credit rating agency Fitch on Tuesday said that regulatory risk in India's telecom sector is high compared to other parts of the world and this is negatively affecting the financial profile of companies.
New Delhi: Credit rating agency Fitch on Tuesday said that regulatory risk in India's telecom sector is high compared to other parts of the world and this is negatively affecting the financial profile of companies.
"Telcos globally are exposed to regulatory risks, while the intensity is much higher in India in the short term. The Indian sector suffers from an evolving regulatory framework and frequent policy changes, which has negative effect on financial profiles and access to capital," a Fitch report said.
In February, Supreme Court cancelled 122 2G licences that were issued in January 2008 and some of the affected companies are waiting for a solution to continue their operations after June 2 by getting fresh licences and spectrum.
However, the sector lacks clarity on when and how the spectrum will be allocated to them.
The Indian government is currently working on new telecom policy which is expected to be finalised in May.
The rating agency also said that Indian telecom sector is highly competitive and the average revenue realisation per minute of 40 paise for companies is among the lowest across the globe.
Also, companies need to invest continuously and heavily in basic infrastructure to provide services for the large and geographically widespread population and "to boost the currently insufficient of 5 to 10 Mhz" in order to remain competitive.
"This generally results in stretched balance sheets, and prevents telcos from generating positive free cash flow (FCF) during the initial years of operation," Fitch said.
The rating agency said that Indian telecom companies are facing a long-term risk emanating from deterioration in profitability and lower cash generation, due to the increasing popularity of data and "adoption of smart-phones which would cannibalise traditional voice and text services."
"The risk is low, however in the short-to-medium term, due to moderate penetration of voice and low data penetration," Fitch said.