"Overcapacity will decline in both Indian and Indonesian telecom industries over 2014-15," the agency said in a note on Thursday. It, however, warned that such deals may "weaken" balance sheets of larger telecom operators as they may take on additional debt.
"The Indian market is less profitable and more fragmented, and the top three telcos have relatively weaker balance sheets - which are more likely to be adversely affected by debt-funded acquisitions. We believe that, in the long run, India can support only six profitable mobile telcos," analysts at Fitch said.
Indian mobile phone companies are waiting for the relaxation of merger and acquisition (M&A) guidelines which the agency believes will be announced by the end of this year.
"Lack of clarity over the telco M&A regime and, in particular, spectrum acquisitions have prevented any consolidation in India so far. Consolidation should improve small telcos' declining profitability as cost synergies are realized and voice tariffs benefit from lower competition," Fitch said.
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