Fitch Ratings says today it expects India's telecom sector to sustain robust growth across market segments, underpinned by still-low teledensity, a strengthening economy and rising foreign interest. While consolidation is an ongoing theme, competition is expected to intensify given the aggressive expansion plans of certain regional players, some backed by their new foreign partners. Fitch also underscores that the expected continuance of hefty capital investment in an environment of intensifying competition is likely to preclude material credit improvements for most operators over the near term.

"The key growth area in the Indian telecom sector is the cellular space, where monthly net subscriber additions have been snowballing over the last 12 to 18 months," comments Priya Gupta, Associate Director in Fitch's Asia-Pacific telecom, media and technology team. Mobile net additions surged to 14.2 million in the fourth quarter of fiscal year ended March 2006 from 5.2 million in Q1FY06. The trend has continued into FY07, with over 5 million net new mobile subscribers per month by July 2006. "There is also moderate incremental demand for local access services, although growth is expected to come from CDMA-based fixed wireless services rather than traditional wireline," adds Ms. Gupta. Based on current growth momentum, Fitch considers the government's target of 250 million telecom subscribers by end-2007 is achievable.

The sector has benefited from a progressive regulatory regime, which is arguably the most dynamic in the region, with several landmark decisions in recent years helping to dissipate regulatory uncertainty. In segments where competition is currently limited, Fitch notes that the regulator remains focused on lowering barriers to entry and enabling sustainable competition. This was reflected in the recent easing in national and international long distance licensing conditions, as well as the imposition of ceiling tariffs on domestic and international leased circuits.

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