Consolidation Won’t Restore Pricing Power To Telecom Operators: Fitch
Fitch retained a negative outlook on the telecom sector for 2017.
Consolidation in India's telecom sector, prompted by the disruptive entry of Reliance Jio Infocomm Ltd., is unlikely to restore pricing power to operators in the near term, Fitch Ratings said in a statement.
The country's largest telecom operator Bharti Airtel Ltd. entered into an agreement to acquire Telenor (India) Communications Ltd. on Thursday. According to Fitch, Airtel's credit profile will remain unaffected by the acquisition as benefits from additional spectrum will offset the spectrum liabilities that it has taken over. The deal is, however, a signal that the entry of Reliance Jio Infocomm Ltd. is forcing consolidation among incumbent operators in the face of intense competition, it added.
Fitch retains its negative outlook on the telecom sector for 2017, and sees fierce competition and rising capital expenditure putting pressure on most operators in the short term.
Reliance Industries Chairman Mukesh Ambani, on Tuesday, laid out telecom arm Reliance Jio's tariff plans come April 2017 when its Happy New Year offer winds down, and also provided clarity on its future revenue.
The massive $20-25 billion investment that Ambani has pumped into the telecom firm as well as its unlimited voice and data offer has accelerated consolidation in the industry, Fitch noted. At the end of this churn, the sector will see four large operators emerge – Bharti Airtel, Reliance Jio, the Vodafone India-Idea Cellular combine, and the Reliance Communications-Aircel combine.
In late January, after a number of unconfirmed media reports, Vodafone Group Plc said that it was in talks with Aditya Birla Group for a potential merger between its India unit and Idea Cellular.
Telenor Acquisition To Boost Bharti's Revenue Market Share
The acquisition of Telenor's India operations will increase Bharti Airtel's revenue market share by 2 percentage points to around 35 percent, Fitch said.
According to the ratings agency, the 43MHz of 1800MHz spectrum Bharti will acquire as part of the transaction is the primary benefit to the company. The other benefit will be Telenor's 45-million subscriber base in the country that is likely to generate a revenue of around $600-700 million, it added.
The takeover will also bolster Bharti Airtel's 4G spectrum portfolio as it will get additional spectrum in seven telecom circles.
Telenor will be left with no further spectrum liabilities in India as Bharti Airtel will take over the deferred liabilities and treat them as future capital expenditure.