Telcos will continue to face pricing pressure: Moody's

Reema: Clearly in the quarter gone by we have seen that data volumes continue to be the growth driver for the both the players, but the worry is that the volume growth has slowed down. For instance for Bharti Airtel it has slowed to 70 percent year-on-year (Y-o-Y) versus 80-85 percent earlier. This is on data volumes and for Idea also it has slowed from 90 percent earlier to 83 percent Y-o-Y basis. Would you worry about the slowdown in the data volume growth?

A: The slowdown in data growth is only natural. We are seeing such high levels of growth that really it is only natural that it would continue to slow down and we have seen this trend across many countries around the region. Having said all that the data growth rates remain high and we as I mentioned earlier expect this to continue to fuel growth within the Indian telecommunication sector and increasingly as handset affordability improves then of course we will see continued impetus for data growth.

Nigel: The other concern is the decline in realizations for both Idea as well as Bharti, how concerned are you?

A: The Indian market has always been intensely competitive and we really don't see much happening over the next couple of quarters which is going to cause grave slowdown in any meaningful shape or form. So, competition will remain intense. Pricing will remain under pressure and of course what we now see with many operators is ahead of the Jio launch they are trying to get as many 4G subscribers as possible. So, certainly over the next couple of quarters pricing will continue to remain intense.

Reema: What about Reliance Communication (RCom), you look at that company very closely. Off late there is a lot of noise and sound bites about the company looking to monetise its stake. If a deal is concluded and the company raises money and de-levers its balance sheet, would you upgrade your rating on RCom?

A: Certainly, it will be a credit positive. In fact when we assigned the BA3 rating earlier this year it was with expectation that they would be successful in some asset disposals. So, to an extent the we have already factored the company's plan to dispose off key assets within its rating. But clearly the money coming through and used for deleveraging and that is the crucial part. The money has to be deployed towards debt reduction. Then of course that would be a credit positive, but it wouldn't necessarily result in a rating upgrade.

Nigel: Would a Rel Jio launch be credit negative for the industry?

A: The launch of Jio which has been much awaited is going to result in pick up in competition and this is why we have seen many of the larger operators bring forth their 4G investment plans in order to steal a march on Jio before it does launch. So, clearly a new entrant coming through is going to create a little bit of pressure with respect to pricing. However, when you look at the large incumbents, when you look at Bharti, when you look at Vodafone, when you look at Idea they all have very well established subscriber bases. They have well established brand equity and platforms with which to deliver a range of services not just 4G and India when you look at the market it is still 70 percent voice driven market. You still have issues over handset affordability and also issues as such as language and literacy as well which may delay some of the take up at 4G level. So, although the entry of Jio into the market yes, it is going to cause a pickup in competition particularly at the higher end of the market. The mass market we probably see the competition will be a little bit more muted as it will or the impact of Jio entering the market will be more muted at those levels.