OREANDA-NEWS. Fitch Ratings expects the 2016 credit profiles of the top-four Indian telcos to come under pressure amid tougher competition, larger capex requirements and debt-funded M&A. The intensified competition will stem largely from the entry of Reliance Jio (Jio), part of Reliance Industries Ltd (RIL, BBB-/Stable). We see the industry blended tariff falling by 5%-6% as Jio's entry will arrest the rise in data average revenue per user (ARPU) despite rising data usage, and as voice ARPU will continue to fall due to cannibalisation by data.

We expect industry revenue to grow by the low-single-digits (2015: 9%), driven solely by data services as voice matures and subscriber growth slows. Data's contribution to revenue will rise to around 25%-27% (2015: 18%-20%) as data traffic will double - aided by the proliferation of cheaper smartphones, lower data tariffs and improving content availability. The top four telcos' average operating EBITDA margin will narrow by 100bp-200bp (2015: 35%) due to pricing pressure on the higher-margin data services and a rise in marketing spend as data competition rises.

Five to six operators will emerge from the shake-out. The top-four - Bharti Airtel Limited (Bharti, BBB-/Stable), Vodafone India, Idea Cellular and Reliance Communications Ltd (Rcom, BB-/Stable) - are likely to raise their revenue market share to 80% (2015: 77%) as the weaker operators depart. Unprofitable telcos - including Videocon, Aircel Ltd and Tata - could exit the industry, given their unviable business model, now that they are able to sell their underutilised spectrum.

Rcom's 'BB-' IDR has low headroom as its 2016 FFO-adjusted net leverage is likely to remain higher than the 4x threshold above which Fitch may take negative rating action. Bharti's 'BBB-' IDR headroom may shrink, as leverage could deteriorate on flat EBITDA.

The report "2016 Outlook: Indian Telecommunications Services" is available on www.fitchratings.com.