Competition and Regulation are Risks for Asia Telecom Firms

Telecom companies in the Asian region, including India, face regulatory risks and intense price competition that can undermine returns and investment, Standard & Poor's (S&P) Rating Services said.

Many emerging Asian telecom markets have strong growth prospects, based on large populations and growth of gross domestic product.

But competition is an issue, ranging from moderate to high levels, and concentrated market structures prevail.

However, in some emerging Asian telecom markets, such as India, regulatory constraints have restricted consolidation that would typically occur in more market-driven economies.

Emerging Asia's Competitive Intensity In The Telecom Industry
Country	Competitive intensity
Bangladesh	High
Pakistan	High
Sri Lanka	High
India	Moderate to High
Indonesia	Moderate to High
Philippines	Moderate to High
Thailand	Moderate to High
China	Moderate
Malaysia	Moderate
source: Standard & Poors

Regulatory risk varies, and is highest in Bangladesh, India, Pakistan, Sri Lanka and Thailand. .

In India, regulatory constraints have been a key barrier to market consolidation that could reduce competitive intensity, S&P says. “That said, we believe that more recent regulatory developments in India offer greater potential for market consolidation in the future.”

“While we believe that greater pricing rationality has returned to the Indian market in recent quarters after several years of stiff competition and margin pressure, the likely entry of Reliance Jio could substantially change the competitive landscape, especially for data services,” the ratings agency said.

In Malaysia, Telekom Malaysia's entry into the wireless market also could ramp up market competition in the next few years.

Although some markets are highly concentrated, they still exhibit a degree of competitive intensity typically associated with a more fragmented market structure. For example, in the Philippines, bouts of fierce price competition frequently occur, despite the country having one of the most concentrated telecom markets globally.

Still, GDP growth, and voracious appetite for data services will boost revenues across most of the region's telecom markets, S&P believes.

Several telecom operators are also pursuing new business segments such as cloud computing, exposing them to nontraditional, formidable
competitors.