"The key growth area in Indian telecom sector is cellular space, where monthly net subscriber additions have been surging over the last 12 to 18 months," Fitch Ratings said in its latest report on 'Indian Telecom Sector - Sustainable Growth Ahead'.
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 said.
Over the medium term, Fitch anticipates the emergence of six operators BSNL, Bharti Airtel, Reliance Communications Limited, Hutchison Essar, Idea Cellular and Tata Teleservices Limited, it said.
The sustained high growth has demanded heavy network investments over the last two to three years, resulting in most Indian telcos generating negative free cash-flows over this period, which is likely to increase over the next year.
The industry has now vaulted into a second capital spending cycle of unprecedented proportions, with aggregate industry capital expenditure expected to double over outlays in FY06.
The number of mobile net additions stood at 14.2 million in the fourth quarter of fiscal year ended March from 5.2 million in Q1 of 2006. The trend has continued this fiscal with over 5 million net new mobile subscribers added per month by July 2006, it said.
The report said there is a moderate incremental demand for local access services but the growth is expected to come from CDMA-based fixed wireless services rather than traditional wireline.
The Indian telecom sector has also benefited from a progressive regulatory regime, which remains focused on lowering barriers to entry and enabling sustainable competition, it said.
This was reflected in the recent easing in national and international long distance licensing conditions, as well as imposition of ceiling tariffs on domestic and international leased circuits.
Overall, the telecom segment is expected to sustain robust growth across market segments, underpinned by still-low teledensity, a strengthening economy and rising foreign interest, it added.
