Voice tariffs unlikely to increase but data tariffs to fall
The worst for telecom sector may be over, but price aggression and tough competition would stay and Uninor and Mukesh Ambani led- Jio Infocomm would define the trends according to a report of HDFC Research.
“While industry outlook is gradually turning positive, the ride may remain rough with aggressive competitors like Uninor, Reliance 4G (disruptive technologyIJ) and Government persistence on roaming abolition, 3G intra circle roaming cancellation and the possibility of no pull back on reserve price of spectrum,” the report says in its research on telecom sector.
The research, finalized and complied only on March 19, 2013, further says that Uninor is an aggressive challenger and will make it difficult for other telecom companies to increase tariffs. “There is virtually unanimous consensus on price increase amongst telecom companies, but Uninor’s aggression can be a key hurdle. This may persist until it achieves a rational revenue marketshare of 8-12 per cent,” it says.
After the license cancellation in February and auction in November, Uninor’s presence has come down to six circles from 13. However, these six circles of operation account for around 38 per cent of India’s overall wireless revenue. Uninor operates at less than 30 paise per minute versus 42-44 paise per minute for others operators.
Idea too may pose a hurdle to industry-wide price hikes even though its price aggression is lower compared to Uninor. Note that when all other operators have cut on promotional offers, Idea remained out of picture.
The report further says that telecom is getting out of the woods. Since FY09, the sector has seen hyper competition, regulatory or legal uncertainties and falling profits. Both Bharti and Idea have underperformed the Nifty over five years (by 41 per cent and 6 per cent respectively). These disappointing returns are in sharp contrast with healthy industry revenue compound annual growth rate of 15.4 per cent over FY08-12.
At the same time, Bharti, Vodafone and Idea are burdened with potential regulatory payouts and low return ratios.It adds that clarity emerging on regulations is positive. This will lead to more spectrum availability - at known (and possibly lower) prices.
The report views that data tariffs will fall going forward as penetration is set to increases and data will contribute around 30 per cent of any operator’s revenue.