Mumbai: Better pricing power and higher revenue from value added services will lift the operating profitability of large telecom operators by 500 basis points in the next two years, rating agency CRISIL Ltd said in a release today.
Tariff hikes will lead to a 300 bps improvement in operating profits, while increasing revenue from data, and third generation and other value-added services will further improve margins by up to 200 bps, Pawan Agarwal, director - CRISIL Ratings, was quoted as saying in the release.
"Higher cash flows from operations, coupled with lower capital expenditure will enable the telecom majors to reduce their debt and leverage over the medium term," the rating agency said.
The Supreme Court's recent ruling cancelling 122 second-generation licences will enhance pricing power of large players, the agency said.
CRISIL said it expects telecom players within its coverage to cut by 30% average capital expenditure in the medium term. These players--Bharti Airtel Ltd, Idea Cellular Ltd, Tata Teleservices, and Vodafone-hold 75% market share in terms of revenue, and 60% in terms of subscriber base.
"The regulatory environment, a key element in the assessment of business risk profile, remains uncertain for mobile telecom players," Sudip Sural, head - CRISIL Rating, was quoted as saying in the release.
"Critical outstanding issues pertain primarily to spectrum pricing and allocation," he said.