 "Regulatory risk negatively affecting telcos' financials: Fitch")
**New Delhi:**Credit rating agency Fitch todaysaid that regulatory risk in India’s telecom sector is highcompared to other parts of the world and this is negativelyaffecting the financial profile of companies.
“Telcos globally are exposed to regulatory risks, whilethe intensity is much higher in India in the short term. TheIndian sector suffers from an evolving regulatory frameworkand frequent policy changes, which has negative effect onfinancial profiles and access to capital,” a Fitch reportsaid.
In February, Supreme Court cancelled 122 2G licences thatwere issued in January 2008 and some of the affected companiesare waiting for a solution to continue their operations afterJune 2 by getting fresh licences and spectrum.
[caption id=“attachment_279141” align=“alignleft” width=“380” caption=“The rating agency said that Indian telecom companies arefacing a long-term risk emanating from deterioration inprofitability and lower cash generation.Reuters”]  [/caption]
However, the sector lacks clarity on when and how thespectrum will be allocated to them.The Indian government is currently working on new telecompolicy, which is expected to be finalised in May.
The rating agency also said that Indian telecom sector ishighly competitive and the average revenue realisation perminute of 40 paise for companies is among the lowest acrossthe globe.
Also, companies need to invest continuously and heavily inbasic infrastructure to provide services for the large andgeographically widespread population and “to boost the currently insufficient of 5 to 10 Mhz” in order to remaincompetitive.
“This generally results in stretched balance sheets, andprevents telcos from generating positive free cash flow (FCF)during the initial years of operation,” Fitch said.
The rating agency said that Indian telecom companies arefacing a long-term risk emanating from deterioration inprofitability and lower cash generation, due to the increasingpopularity of data and “adoption of smart-phones which wouldcannibalise traditional voice and text services.”
“The risk is low, however in the short-to-medium term,due to moderate penetration of voice and low datapenetration,” Fitch said.
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