“We expect ARPUs to continue to increase in the medium term as telcos will likely price 5G services higher than 4G…ARPUs will also grow as 2G and 3G users gradually migrate to higher-priced 4G and potential 5G plans,” Fitch said in a official statement Wednesday.
Jio was the largest bidder, spending a whopping Rs 88,078 crore on 5G airwaves in the spectrum sale that ended Monday.
and (Vi) bought airwaves worth Rs 43,084 crore and Rs 18,799 crore respectively. Analysts have said the large spectrum holdings of existing operators virtually rule out the entry of any new player into the consumer mobility space.
Fitch said that the growth in the operating cash flows of Airtel (BBB-/Stable) and Jio is sufficient to pay for their 5G spectrum assets and related capex, global ratings agency.
It also forecasts that telcos’ operating margins will expand by 200-300 bp as telcos would realise cost savings on lower spectrum usage charges, given that they won’t have to pay usage charges on spectrum bought in the latest auction.
“We expect Bharti’s and Jio’s free cash flow generation to improve as operating cash flow growth will more than offset incremental spectrum-related payments and increase in 5G-related capex,” Fitch said.
Further, it expects India’s top telcos to initially focus on use cases for enterprise customers to accelerate 5G revenue growth.
Going forward, Fitch expects the 5G capex in FY24 to replace current 4G capex spends as 4G coverage is largely complete. Telcos, it said, would continue to strengthen fibre infrastructure by connecting towers with fibre and backhaul infrastructure to prepare for the launch of 5G services.
The ratings agency expects the credit profiles of Bharti and Jio, a subsidiary of
, to remain intact as their balance sheets have been strengthened by large equity raisings in the last three years. “We expect Bharti’s net debt/EBITDA for FY23 will be 1.5x-1.6x, well below the 2.5x level above which Fitch may consider negative rating action.”
It also expects the telecom industry to continue to consolidate with Jio and Bharti together garnering 80%-85% (March 2022: 78%) of revenue of private telcos during 2023-2024. Jio’s and Bharti’s network positions, it said, would pull ahead of Vodafone Idea as they have larger sub-1GHz spectrum and about three times Vodafone Idea’s high frequency 5G spectrum. Sub-1GHz spectrum has better propagation qualities than higher-frequency spectrum.
It, though, said 5G business cases would only gradually evolve with limited cash flow contribution in the initial years. “Telcos will likely focus on 5G use cases for enterprises initially to accelerate revenue growth in this segment.”