The entry of Reliance Jio Infocomm into the Indian telecoms sector is likely to have a destructive impact on incumbent operators and hasten industry consolidation, Fitch Ratings has predicted.
Reliance Jio finally launched 4G services on Monday, six years after the 2010 auction that led to the company securing the required spectrum.
The operator has come out swinging with an offer for free voice calls and data services for a promotional period, as well as plans to offer free voice calls and only charge for data after this period ends.
Fitch Ratings said the company estimates that Jio's planned blended tariff rates will be at least 20-25% cheaper than those offered by incumbent telcos, which are likely to reduce their own rates to avoid losing customers.
As a result, the credit ratings agency expects the industry blended tariff to fall by 10-15% in the next year, reversing the recent rise in data ARPU and further squeezing voice ARPU.
“Jio's tariff plans may gradually push the market toward 'data-only plans', under which customers are charged only for data, not for voice and text messages,” Fitch said in a research note.
“Such a shift could be particularly disruptive, given that most incumbents still derive the bulk of their revenue and profit from voice and text messages.”
The pressure is expected to impact the entire industry, but smaller operators are expected to be the hardest-hit. Some operators including Reliance Communications face a ratings downgrade as a result.
Fitch has a negative outlook for the overall Indian telecoms industry, due to strict competition, large capex requirements and the prospect of debt-funded M&A activity.
The company expects the industry to consolidate down to five or six players, with unprofitable telcos such as Telenor India and Tata Communications potentially exiting the market.
Source: http://www.telecomasia.net/content/reliance-jio-could-squeeze-indian-telco-sector