"We believe the domestic telecom industry is entering a consolidation phase, given significant regulatory changes and a considerable shift in the competitive environment," the report said.
The report, titled 'Moderating Regulatory and competitive risks are positive for India's top telecoms," is written by the agency's credit analyst Abhishek Dangra.
It further said: "The top three players - Bharti Airtel, Vodafone and Idea - are likely to strengthen their market position because smaller, weaker players are likely to find it increasingly difficult to acquire expensive spectrum and lack the scale to run profitable nationwide operations."
"We believe that the new policies on spectrum renewal, mergers and acquisitions, and spectrum trading significantly improve regulatory risks for telecoms, the risks will still be above-average compared with those in global markets.
"This is because some ambiguities in past policies has resulted in legal disputes between the government and the telecoms, and greater clarity needs to emerge on the policies rolled out in 2014," Dangra said.
According to the report, the domestic telecom industry is entering a new phase where the market leaders are likely to drive competition. This is in sharp contrast to a few years back when small players and new entrants shaped competition with price wars.
In addition, the intense competition in the industry should slowly moderate as a result of consolidation, the report added.
The data segment is likely to propel the next wave of growth and competition in the industry, it said.
The policies announced in 2014 provide long-awaited guidelines for important issues that had been mired in uncertainties, ambiguities and the lack of a policy framework.
"S&P believes that the new policies are significant and provide a good starting framework for improving the industry's prospects," Dangra added.
The report said that ambiguity about the new guidelines and any reversal of policy direction from the regulators, the new government or the judiciary is a key risk for the industry, although this appears less likely.
Aggressive and prolonged price wars, including those in the data segment, along with the entry of new players could also be detrimental to the industry, it added.