Telecom firms’ profit growth will double in two years: Crisil
OUR BUREAUTo ride on tariff hikes, increase in data and value-added services
MUMBAI, DEC 26:The operating profits of large telecom companies are forecast to rise 20 per cent over the next two years. This is twice the operating profits of about 10 per cent a year posted by the operators in the last five years, according to a Crisil study.
Half of this increase would be from tariff increases, whereas the other half would be contributed by increased data and value-added services (VAS), the study added.
“Our estimates show there is still a 50 per cent gap between headline tariffs and average realised rate per minute (ARPM) due to discounted call rates offered to many subscribers.
With competitive intensity easing, telecom companies are in a better position to reduce the discounts and crunch the gap,” said Crisil Ratings Senior Director Sudip Sural.
This will contribute about half of the rise in operating profits, he added.
Revenue contribution from data and VAS could touch 20 per cent in the medium term from 16 per cent in the last fiscal. This is because large telecom players are seeing data usage more than doubling in the first half of this fiscal from the year ago period.
This trend is expected to continue, following a near doubling of smartphone sales over the last financial year and higher 3G penetration due to reduction in 3G prices. This will contribute to the balance of rise in operating profits, it said.
Crisil believes that the pricing power, which started returning a few months ago, will sustain over the next 2-3 years. For the Crisil-rated large telcos, ARPMs stabilised in 2012-13, while it improved by around five per cent in the first half of the current fiscal as tariffs were hiked in select circles.
REGULATORY TAILWINDS
With clarity emerging in policies, the industry is now seeing tailwinds from the regulatory side. The crucial issues of spectrum availability and pricing have been partially addressed with the finalisation of the reserve price for the next round of auction in January 2014.
While these signal better times for operators, a caveat is due: how quickly the rest of the regulatory creases are ironed out will remain the key question.
While the upcoming auctions will help arrive at a market determined spectrum price, other regulatory issues such as one-time fees for excess spectrum, spectrum usage charges, re-farming of spectrum in the 900 MHz band and a framework for spectrum sharing and trading remain pending.
An early resolution of these will be critical to the health of the sector.
rajesh.kurup@thehindu.co.in(This article was published on December 26, 2013)
