The imminent entry of Reliance Jio has led domestic rating agencies Crisil and India Ratings to cut their outlook on the telecom sector by a notch, saying the Mukesh Ambani-led company will squeeze the market shares and margins of existing players.
Mumbai: The imminent entry of Reliance Jio has led domestic rating agencies Crisil and India Ratings to cut their outlook on the telecom sector by a notch, saying the Mukesh Ambani-led company will squeeze the market shares and margins of existing players.
"We have revised the telecom sector outlook for FY17 to stable-to-negative from stable. Launch of Reliance Jio will intensify competition which will squeeze the market share, margins and credit metrics of the incumbents," India Ratings said in a note.
Its competitor Crisil has given a negative outlook on the sector, citing heating up of rivalries as one of the factors for its view.
India Ratings said the launch of RJio will lead to data revenues remaining stagnant for the existing players. It added that data realisations for a megabyte are likely to correct by 30-40 percent.
Apart from this, the need to keep the network in good shape to compete against RJio will lead to higher investments on spectrum by existing operators, especially through the newly-opened route of radio wave trading, it said.
"The competitive intensity will increase as RJio readies for a launch backed by a cash-rich parent. We expect RJio to contend for market share out of the existing pie of subscribers which are being serviced by incumbent operators," India Ratings warned, adding that Ambani is launching his offering after investing over Rs 98,000 crore.
"We expect to witness a high-intensity battle for grabbing high usage, service-focused data subscribers once Jio enters the fray, which will also spawn a shift in focus from pure-play services to content differentiation," Crisil said.
On other key parameters, India Ratings said it expects a decline in voice revenues and moderation in average revenue per user in the next fiscal.
Both the agencies said the sector is set for greater consolidation, as the incumbents, especially the top three -- Airtel, Vodafone and Idea -- cement their positions.
"In the last two rounds of spectrum auctions, these operators, along with Jio, obtained about 85 percent of the spectrum sold. Their sheer dominance, in terms of both revenue and spectrum share, makes further consolidation inevitable," Crisil said.
India Ratings expects spectrum to drive consolidation. It described the recent guidelines allowing spectrum sharing and trading transactions as a positive move which will enable smaller players to monetise their assets and allow bigger players to enhance their spectrum holdings.