ICRA on Telecom Sector

ICRA on Telecom Sector

telecom India

Moderation in capex intensity impacted quality of services of telcos; expected to improve going forward.

Over the last few quarters, the quality of services of the telecom operators (telcos), manifested by frequent call-drops experienced by users, has come under the scanner. According to Mr. Sabya sachi Majumdar, Sr.VP, Co-head Corporate Sector Ratings, ICRA Limited ICRA is of the opinion that the prominent reasons for deterioration in quality of services are (a) expanding data volumes, which have exerted pressure on the overall network, and (b) slowdown of capital expenditure, or capex on network roll out/upgradation by telcos. The capex intensity in turn was constrained over the last few years largely on account of the fact that telcos had to deploy funds towards spectrum acquisition. However, performance on QoS metrics is critical and the telcos cannot afford poor customer experience, especially in data services. The capex intensity has improved in FY2016 and the telcos are guiding higher capex going forward.This should drive the improvement in service quality from current levels.

As per the Quality of Service metrics (QoS metrics) published by TRAI, the deterioration in the service quality is noticed since September 2013,notwithstanding some improvement seen since December 2014. The deterioration in QoS metrics coincides with the period of strong growth in the mobile data traffic following the roll-out of data services by all telcos, attractive data tariffs, and increasing penetration of smartphones. For the ICRA Sample of Bharti Airtel Limited, Vodafone India Limited, Idea Cellular Limited, and Reliance Communications Limited, the data traffic has grown by 586% from 43.1 billion MBs in Q2 FY2013 to 359.4 billion MBs in Q2 FY2016. While spectrum has been added over this period, the mobile traffic (both voice and data)has outpaced the increase in spectrum holding.For instance, for the ICRA Sample, the data carried per MHz of spectrum has increased from a negligible level in June 2010 to 0.29 billion MBsin September 2015. Moreover, addition of spectrum does not automatically translate into higher capacity as network capex has to be incurred to put the spectrum to use.

The network capex for the industry witnessed a slowdown during FY2013 and FY2014, with capex to sales ratio at 13% and 12% respectively for the ICRA Sample, which partly explains the deterioration in QoS metrics from September 2013 onwards. The intensity of network capex for Indian telcosis lower than 20-22% range for many major telcos internationally and much lower than that of telcos in China where it is in excess of 30%. Deployment of funds towards spectrum acquisition has been an important factor which has constrained the capex intensity in India.According to Mr. Majumdar For the ICRA Sample, over the last five years, the cash outflows for spectrum acquisition comprised 44% of the total capex. However, network capex has picked up as reflected by improvement in capex to sales ratio to 16% and 17% for FY2015 and H1 FY2016 respectively. ICRA expects this momentum to be maintained in medium term.

 

ABOUT AUTHOR

Niveza Editorial Desk : We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to a pave a smooth road for our clients in the shaky world of stock market. While tracking the mood swings of the market we bring our clients the most rewarding deals.

LEAVE A COMMENT

RECOMMENDED READING

Portfolio Management Service: Outsource Your Investment Worries

The stock advisory service is the best option for you if you want to invest in stock market but don't have adequate knowledge of it. An advisory firm gives you the much-needed hand holding to take the right decisions. Their research reports an
Read More>>

Stock Advisor: For High Growth & Better Risk Management

Stock investment is messy. Yes, there is a big growth potential but if you are doing it on your own and you don't have the experience of fundamental analysis, it can be an uphill task. That is one of the reasons why most of the investors who u
Read More>>

Rupee Tumbles To A New Low; Market Expected To Consolidate

Our Analysis This week, the market consolidated between 11,300 to 11,500 due to lack of positive triggers & consolidation in heavyweights like HDFC, HDFC Bank, Reliance. Indian Rupee de
Read More>>

Free Share Market Tips Today: Stop & Read Before You Invest In Stocks

Various popular stock market news portals and TV channels discuss trending stocks and provide free share market tips based on technical charts and often without in-depth research. Our research desk analyses these trending stock market tips and pro
Read More>>

Value Investing: The Road To Value Picks & Undervalued Stocks

You must have heard many times that Warren Buffett is a value investor. In the Indian context, even Rakesh Jhunjhunwala is referred to as a value investor. It does tell us that these are smart investors but what exactly does value investing me
Read More>>