Telecom players' profitability to improve by 500 bps:CRISIL

CRISIL Ratings has come out with its report on telecom sector. As per the rating agency telecom players' profitability may improve by 500 bps.

Reducing competition and value added offerings to aid improvement; Regulatory uncertainty to persist

CRISIL believes that the operating profitability of the large mobile players rated by it will improve by 500 basis points (bps) in the next two years. The improvement will be driven by reduced intensity in competition, improved pricing power, and increasing revenue from value-added services such as data and 3G. Higher cash flows from operations, coupled with lower capital expenditure (capex) will enable the telecom majors to reduce their debt and leverage over the medium term. However, uncertainties posed by an evolving regulatory framework will remain a key credit monitorable for the sector.

CRISIL-rated players hold market shares of around 75 and 60 per cent, respectively, of the revenue and subscriber base in the sector. They account for 70 per cent of the nearly Rs.2 trillion debt outstanding in the mobile telecom sector at the end of December 2011.

Competitive intensity in the telecom sector began to reduce in mid-2011, as the large players hiked tariffs in select circles. The Supreme Court

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