Pricing power returns to Indian telecom companies as tariffs rise: Report

Pricing power returns to Indian telecom companies as tariffs rise: Report
With gradual increase in voice tariffs, there has been some restoration of pricing power for domestic telecom companies, says rating agency Fitch.

According to Fitch Ratings, the gradual increase in voice tariffs by Indian telcos is positive for the industry. There has been a prolonged period of price-led competition during 2008-12 period that eroded profitability and weakened balance sheets.

"We expect industry average revenue per minute to improve from the current level of INR 0.43 per minute in 2013 as competition abates," said Fitch Ratings. "The industry monthly churn rates are also likely to decline by 3 to 4 percent from 8 to 9 percent in 2012."

Since the beginning of 2013, some Indian telcos have raised tariffs by at least 30 percent either by increasing the headline tariffs or reducing free minutes, Fitch said.

Reliance Communications - the fourth largest private Indian telecom firm - has increased its headline voice tariff on GSM and CDMA network by 33 percent to 2 paise per second, it added.

In January 2013, Bharti Airtel and Idea Cellular announced reduction of promotional minutes, which effectively increased revenues from subscribers on associated discounted plans by 20 to 30 percent, Fitch said.

Meanwhile, competition has also been easing with the departure of three operators following Supreme Court decision in February this year to cancel 122 licenses allotted during the 2008 licence allocation process, the rating agency added.

Fitch Ratings further said only four of 10 participants make positive EBITDA and we believe there will be further consolidation once the regulator relaxes M&A guidelines. The market is unlikely to support more than six profitable operators in the medium term.

Cash flows of Indian telcos will also benefit from the government's decision to allow regulatory payments to be made over the life of the licence, instead of up-front lump-sums previously, it added.

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