What The Vodafone Deal Means For India's Telecoms Market
BMI View: Vodafone has received government approval for its plan to buy its minority partners' shares in Vodafone India for a consideration of US$1.6bn. Given the need for sector consolidation in the Indian telecoms market, BMI outlines the three important considerations for prospective investors as well as our outlook regarding the impact of the upcoming elections on the wider telecoms sector.
Overcrowded Telecoms Sector In Need Of Consolidation
The Indian telecoms industry is overcrowded with 15 players, although the top five account for more than 75% of market share. Due to intense price competition, operators face huge downward top line pressures and falling profit margins. This saddles smaller local players - which are not large enough to offset fixed capital expenditure - with huge debt. The end result is mounting industry debts which can only be unwound by a combination of foreign equity investment and industry wide consolidation. The Cellular Operators Association of India (COAI), which represents GSM mobile operators that together service nearly 700mn of the country's 865mn mobile subscriptions, has argued that the regulatory costs - which include service taxes, licence fees, graded spectrum usage charges and revised spectrum variable prices - account for nearly 40% of the customer tariff. This caused EBITDA margins for the industry to fall to 15% in 2012, compared to the 36.5% average in the same period for Asian telecoms sector.
|Mounting Telecoms Debt|