"Fitch Ratings revised the outlook on the Indian telecom sector to stable from negative. The agency believes that the industry will continue to consolidate in 2014, which will reduce competition and bring back the pricing power to the major companies," Fitch said in a statement.
Negative outlook meant a possibility of downgrade. "Of the 10 telcos currently in the market, we believe that six at most can operate profitably in the long-term. Larger companies could cherry-pick smaller operators to acquire spectrum assets, however this might impair credit metrics if funded by debt," the statement said.
An Empowered Group of Ministers recently approved mergers and acquisitions policy for which detailed guidelines are expected to be announced before auction starts in third week of January.
As per the proposal cleared by EGoM, only spectrum purchased through auctions or liberalised by telecom operators by paying one-time spectrum charge can be acquired by a telecom operator without having to pay latest market price for the airwaves.
Government has also fixed the start price for the sale of spectrum in the 1800 mega-Hertz band at a pan-India rate of Rs 1,765 crore per MHz, about 26 percent lower than the base price in the March sale.
For the 900 MHz band, it approved a rate up to 53 percent lower than the previous auction price.
Fitch said cheaper pan-India spectrum and the introduction of a flexible payment mechanism for regulatory payments would reduce regulatory risk.
"Furthermore, potentially lower spectrum usage charges - allowing spectrum sharing and trading - would mean cost-savings for most Indian telcos. However, spectrum "re-farming" remains a key risk, which if implemented could cause significant cash outflows for the top three telcos," Fitch said.