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SSA - AFK Sistema PAO News Story

$5.4 -0.1  -1.5%

Last Trade - 18/09/20

Sector
Telecoms
Size
Mid Cap
Market Cap £2.00bn
Enterprise Value £8.90bn
Revenue £6.04bn
Position in Universe 268th / 1807

RPT-Fitch: Pricing Power Returns to Indian Telcos as Tariffs Rise

Wed 29th May, 2013 8:03am
(Repeat for additional subscribers) May 29 (Reuters) - (The following statement was released by the rating agency) Indian telcos' gradual increase in voice tariffs demonstrates the restoration of some pricing power, Fitch Ratings says. This is positive for the industry following a prolonged period of price-led competition during 2008-12 which eroded profitability and weakened balance  sheets. Since the beginning of 2013 most Indian telcos have raised tariffs by at least  30% either by increasing the headline tariffs or reducing free minutes. Reliance  Communications  RLCM.NS  - the fourth largest private Indian telco and a price-aggressor -  has increased its headline voice tariff on GSM and CDMA network by 33% to INR2  paise per second. Earlier in January 2013, Bharti Airtel  BRTI.NS  (Bharti, BBB-/Stable)  and Idea Cellular  IDEA.NS , the largest and third-largest telcos, announced reduction of  promotional minutes, which effectively increased revenues from subscribers on  associated discounted plans by 20%-30%. We expect industry average revenue per minute to improve from the current level  of INR0.43 per minute in 2013 as competition abates. Industry monthly churn  rates are also likely to decline to 3%-4% from 8%-9% in 2012. Competition has  been easing with the departure of three operators following India's Supreme  Court decision in February this year to cancel 122 licenses on the grounds of  corruption during the 2008 licence allocation process. Three other operators  including subsidiaries of Norway's Telenor  TEL.OL  and Russia's Sistema  AFKS.MM  have  significantly scaled back their operations.  Only four of 10 participants make positive EBITDA and we believe that there will  be further consolidation once the regulator relaxes M&A guidelines. The market  is unlikely to support more than six profitable operators in the medium term. Since 2008, Indian telcos have been suffering from both from tariff declines and  cost pressures. Smaller operators started a price war by offering voice calls as  low as INR1 paiseper second. The prepaid nature (over 95%) of the market,  growing population, and a price-sensitive customer base lured operators to fight  for market share by cutting tariffs. Simultaneously, high spectrum costs  resulted in a large burden on telcos' balance sheets. Out of the four operators  with positive EBITDA, net debt/EBITDA leverage ratio ranged between 2.0x (Idea  Cellular) and 5.4x (Reliance Communications) for the financial year ending March  2013. Fitch revised Bharti's Outlook to Stable from Negative on 13 May following an  equity injection of USD1.26bn from the Qatar Foundation Endowment. Bharti's 2014  funds flow from operations-adjusted net leverage will improve to below 2.5x. The  Outlook revision also factored in a likely improvement in Indian tariffs and  manageable regulatory risk.  Cash flows of Indian telcos will also benefit from the government's decision to  allow regulatory payments to be made over the life of the licence, instead of  up-front lump-sums previously. We estimate that Bharti can absorb a maximum of  USD1bn annual cash outflows whilst retaining its current rating, which should be  sufficient to cover two key regulatory issues - one-time fees on excess spectrum  (over 6.2MHz) and future spectrum fees. ((Bangalore Ratings Team, Hotline: +91 80 6677  2513, Bhanu.priya@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net)) Keywords: Fitch: Pricing Power Returns  to Indian Telcos  as
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