Telecom tariffs likely to see more hikes in long road to Rs 300 Arpu

With 5G yet to be monetised, expect many more increases in telecom tariffs

On Friday, as Reliance Industries announced its financial results for the June quarter, its telecom business stood out for its double-digit growth both in revenue and net profit, beating the Street forecast. Reliance Jio also emerged as the biggest telecom data company.
 

But its Arpu, or monthly average revenue per user, which captures the financial health and promise of a telecom service provider (telco), remained flat at Rs 181.7 for the fourth consecutive quarter. The telecom industry leader is now looking at improving Arpu over the next few quarters because of recent tariff increases. 
 

The Jio scenario explains why the tariff hikes, led by the biggest player, have dialled in a new era in Indian telecom known for having the lowest tariffs in the world.     

 

Upping the Arpu
 

Breaking a record 30-month logjam, India's telecom sector saw an industry-wide increase in tariffs earlier this month. In these 30 months, though there were minor tariff tweaks, no one had raised tariffs across the board. This time, the hikes are up to 25 per cent and touch a large chunk of both prepaid and postpaid plans, from the entry level top-ups to premium 5G data packs, setting a road map for an Arpu of Rs 300 and beyond.
 

Bharti Enterprises Chairman Sunil Mittal, a long-time backer of higher Arpus, has maintained that India needs to cross the Rs 300 Arpu figure and have an effective pricing mechanism to make the industry robust. Even at an Arpu of Rs 300, India would remain the most affordable telecom market, industry watchers say. But, for now, analysts are looking at the short term. In a recent note, Crisil Ratings said the recent tariff hikes would boost the industry Arpu to a decadal high of Rs 225-230 in 2025-26 (FY26), compared to Rs 182 in FY24. 
 

An analysis by CareEdge Ratings estimates the revised tariffs will pull up the blended Arpu of the three private sector telcos by 15 per cent to Rs 220 in FY25. “Our analysis expects every Rs 1 increase in Arpu to add about Rs 1,000 crore to the industry’s profit before interest, lease, depreciation, and tax. This will aid the telcos to deleverage the capital, technology upgrades and in network expansion,” says CareEdge Ratings.
 

Bank of America expects medium-term Arpus to reach Rs 250, and Rs 300 over five to seven years. Citi Research estimates Airtel’s Arpu, now the highest in the industry at Rs 209, to reach Rs 235, Rs 270, and Rs 305 over FY25, FY26 and FY27, respectively. On the whole, analysts believe there will be multiple tariff hikes over the next 12 months, although their intensity may fluctuate.

“There is an expectation that the next set of hikes may not be as steep as the latest one, to ensure that consumers can absorb them,” a sector expert with a major brokerage said.
 

After Reliance Jio launched its telecom services in 2016 with freebies and rock bottom tariffs, incumbents such as Bharti Airtel and Vodafone Idea have been following the low-tariff model, adding to the already grim financials of the telcos caused by high spectrum prices in auctions and a complex regulatory regime. As of last year, the industry debt was pegged at more than Rs 4 trillion.
 

With Vodafone Idea, the biggest loss maker, now in the process of raising funds, as well as the government coming in as a major shareholder and offering sops to the industry to prevent a duopoly, India’s telecom sector is on a reset path. The tariff hikes will come in handy.

 

Path of reset
 

“We believe that this level of Arpu will enable the substantial investments required in network technology and spectrum and offer a modest return on capital,” Airtel CEO Gopal Vittal had said while announcing the hikes. 
 

Anshuman Thakur, head of strategy at Reliance Jio Infocomm, has reportedly said that the coming quarters would see the impact of the tariff hikes. He has pointed out that the hikes would ensure the entire telecom sector becomes stronger and India emerges as a premier digital society. A Vodafone statement said: ‘’In line with its commitment to provide its consumers with simple and comprehensive plans, Vi has curated an optimum range of feature-rich plans to meet the diverse needs of its consumers.’’ And changes in entry-level plans were nominal, the telco said.  
 

The tariff hikes are essential, especially as there is nothing extra being charged for 5G.
 

“The telecom operators have invested a lot as part of the 5G rollout. Capital expenditure by the industry was significantly elevated in FY24. But the industry is yet to monetise the same, as there are no 5G specific tariff plans,” said Ankit Jain, vice-president and sector head at Icra Limited.
 

However, in a price sensitive market, no one wanted to take the first step, until Reliance Jio made the first move and raised tariffs by 12-25 per cent. Next day, Bharti Airtel raised its tariffs by 10-21 per cent, and raised the price of even the cheapest monthly plan. But it did not touch 5G. Vodafone Idea, which has been the most vocal proponent of a tariff hike, owing to its delicate financials, increased prices by a similar amount, opting to focus on unlimited data plans with validity periods from 28 days to a year. The last major industry-wide tariff hikes had been in December 2021, when average prices had gone up 20 per cent, led by Bharti Airtel. Back then, industry Arpu had stood at Rs 114.21. This increased to Rs 153.5 at the end of the fourth quarter of FY24, shows data from the Telecom Regulatory Authority of India (Trai) shows. The pace of sequential rise remained slow and became tepid over the past three quarters.
 

Within mobile services, prepaid Arpu crossed the Rs 150 mark for the first time in the fourth quarter of FY24, and has risen for more than six quarters, but the pace has been slow. The figure includes state-run BSNL, whose lower Arpu pulls down the industry figure.
 

Postpaid Arpus declined to Rs 187.85 at the end of the fourth quarter, after suddenly rising in the preceding quarter. Postpaid being the more lucrative segment, this worries telcos. 
 

Though no official figures are available, postpaid users are said to be 12 per cent of India’s mobile subscribers at the end of FY24, according to a report by Crisil last year.
 

Naturally, all eyes will be on Arpus in the coming quarters, whether or not telcos improve the quality of services.