The top-four's - Bharti Airtel Limited (Bharti, BBB-/Stable), Vodafone India, Idea Cellular and Rcom/Aircel - revenue market share will rise to around 84% (2016: 79%) as they gain market share from smaller telcos; we expect Reliance Jio to gain less than a 2% revenue market share in 2017 but to act a major price-disruptor to the sector.
Industry revenue growth could slow to the mid-single-digits (2016: 7%-8%) due to lower data revenue growth, as data tariffs could decline by at least 15%-20%. The EBITDA margin of the top-four telcos could decline by 150bp-200bp (2016 average: 34%) due to lower tariffs and increased marketing spend as data competition rises. Most telcos' FCF will be negative, as cash generation is likely to fall short of capex requirements.
Rcom's 'BB-' IDR has low headroom, as its FFO-adjusted net leverage is likely to remain at around 5.5x - higher than the 4.5x threshold above which Fitch may take negative rating action. We believe that Rcom's plan to demerge its wireless business is credit neutral - as the demerger will take away an equal proportion of debt and EBITDA from Rcom. Our Stable Outlook factors in our expectation that Rcom will use the proceeds from the sale of tower assets to improve leverage, commensurate with a 'BB-' rating.
Bharti's 'BBB-' IDR headroom may narrow as FFO-adjusted net leverage could deteriorate to over 2.0x (FY16: 1.8x, excluding USD5bn deferred spectrum costs) due to flat EBITDA as competition intensifies. Its 2017 operating EBITDAR margin could ease to 33%-34% (FY16: 35%) as Jio's high-data-allocation plan could hit Bharti's premium customer base, which accounts for the most profitability at its Indian mobile segment.
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