BMI View: The Indian telecommunications market has experienced a considerable number of challenges in the last few years due to constant regulatory disputes and a hostile business environment, which includes an aggressive price war that has eroded operators' profitability. Despite the country's significant growth potential, the industry is struggling to capitalise on the opportunities, which will remain the central theme in the near future as we do not expect the market to reach a swift resolution of the complicated issues.
- India's mobile subscriber forecasts have been revised downwards in light of heavy subscriber losses in late 2012. We now expect 891mn subscribers by end-2013.
- The subscriber loss was largely due to more stringent subscriber verification rules, and this has resulted in an upgrade in our ARPU forecast.
- We forecast slow but steady fixed broadband subscriber growth as operators and consumers opt for cheaper and more convenient mobile solutions.
Key Trends & Developments
Bharti Airtel and IDEA Cellular hiked their voice tariff rates by almost 100% in late January 2013 as companies try to recover from the damages and low prices resulting from the detrimental price war initiated in June 2009. Earlier in the month, Bharti Airtel and Vodafone India raised their 2G data rates The move to increase tariffs in the voice market is a more significant one given that the majority of operators' revenue comes from this service.
Reliance Communications has agreed a new eight-year managed services contract with Alcatel-Lucent. Worth a minimum of US$1bn, the upgraded deal replaces an existing five-year US$750mn contract due to expire in 2013. The deal covers management of mobile, fixed-line and enterprise networks, primarily located in eastern and southern India. Under the terms of the contract, approximately 4,000 Reliance Communications employees (around 15% of the operator's workforce) will transfer to Alcatel-Lucent.
India was ranked 11th in BMI's latest Asia Pacific Telecoms Risk/Reward Ratings with a Telecoms Rating score of 49.7. Although there was a decline in the country's score from the previous quarter, India moved up from 13th position as Bangladesh experienced a greater score decrease. We have argued for some time that, while the worst was behind us in terms of India's economic downturn, the country's growth revival would be a protracted affair, and the lack of vigour in recent industrial activity data bears witness to this view. To the disappointment of consensus expectations, industrial production growth slipped back into the red in September 2012 (contracting by 0.4% y-o-y).