Telecom industry to turn a corner: S&P

The agency also says that the market is entering a new phase where the top three players will drive the competition

Rating agency Standard & Poor's believes that the Indian telecom industry is all set to revive, with improving regulatory risk and moderating competition.

It also said that the Indian telecom market is entering a new phase where the top three players will drive the competition. Since 2009, competitive intensity was determined and decided by new entrants like Tata Docomo, Uninor and MTS amongst others. This is in sharp contrast to a few years ago when small players and new entrants shaped competition with price wars. In addition, the intense competition in India's telecom industry should slowly moderate as a result of consolidation.

“The top three players in the industry--Bharti Airtel Ltd., Vodafone India, and Idea Cellular--are likely to strengthen their market position because smaller, weaker players are likely to find it increasingly difficult to acquire expensive spectrum and lack the scale to run profitable nationwide operations,” said Abhishek Dangra, credit analyst at Standard & Poor's.

In the current calendar year, the government has come up with policies that help promote the industry like a favourable mergers and acquisitions policy. The positive move on consolidation already resulted in a deal where Bharti Airtel will purchase Mumbai-circle operator, Loop Mobile. Though regulatory risks for the telecom sector in India are higher than those in other countries, the risk profile improved after the government also allowed spectrum trading.

Earlier, regulatory ambiguity on issues like 3G pacts that the top three companies went into, resulted in cancellations, penalties as well as legal disputes. “We believe the new policies are significant and provide a good starting framework for improving the industry's prospects,” said Dangra.

There are however chances of reversal in policy direction, formation of a new government, and judicial moves, but S&P believes that it is less likely. “Aggressive and prolonged price wars, including those in the data segment, along with the entry of new players could also be detrimental to the industry,” said S&P, in a press release.