Tariff hikes, consolidation may lead to further gains for telecom players

Industry likely to benefit further as full gains from tariff hikes seen over next two quarters; consolidation may lead to further increases

India’s mobile sector revenue was up 8 per cent quarter on quarter (Q-o-Q (14 per cent year on year Y-o-Y) to an annualised Rs 2.69 trillion, according to data collated by the Telecom Regulatory Authority of India (Trai).

 

Bharti Airtel had the highest revenue growth at 10 per cent Q-o-Q (19 per cent Y-o-Y, while Vodafone Idea (VIL) and RJio reported lower growth.

 

RJio leads with revenue market share at 41.6 per cent, but its share was down 51 basis points (bps) Q-o-Q. VIL also lost 35bps Q-o-Q share to 14.4 per cent. Bharti Airtel’s revenue share gain was 86 bps QoQ to 38.6 per cent (180bps in the last 12 months).

 

Analysts see the share domination by the top two players. The implied industry average revenue per user (Arpu) was up 9 per cent Q-o-Q to Rs 194/month, while subscriber base declined by 17 million (down 1.5 per cent) Q-o-Q. Telecom spends as a per cent of nominal GDP was around 0.9 per cent in Q2 (vs. 0.8 per cent in Q1), below levels of 1.4 per cent of GDP prior to RJio’s launch in late H2FY17. The full benefits of the tariff hikes will be realised over the next two quarters. Given consolidation, further tariff hikes could follow. RJio and Bharti Airtel are likely to continue gaining market share.   

   

The industry adjusted gross revenue (AGR) (including National Long Distance) in Q2FY25 for the top three players grew to Rs 63,600 crore. AGR growth is likely to continue till Q4FY25. Airtel’s AGR includes Y-o-Y incremental AGR of Rs 4,100 cr vs RJio’s Rs 3,500 cr. VIL’s market share dip may be reversed if it can accelerate its ongoing network rollout. RJio’s hike benefits come with a lag due to ha igher mix of long validity recharges.

 

Growth has clearly received a significant boost. Circle-wise analysis shows in Q2FY25, Bharti grew faster in metros (11.5 per cent Q-o-Q), and A circles (+12.5 per cent), while B (+9.6 per cent) circles and C circles (+8.4 per cent Q-o-Q) have grown slower. Bharti has gained market share Q-o-Q in 20 circles during Q2FY25.

 

VIL’s AGR (incl. NLD) rose 5.4 per cent Q-o-Q (1.8 per cent Y-o-Y) to Rs 9,700 cr but VIL’s AGR declined in terms of revenue market share. RJio’s AGR (incl. NLD) rose 6.7 per cent Q-o-Q (14.1 per cent Y-o-Y) to Rs 28,000 cr but market share was down 50 bps Q-o-Q. AGR declined in metros (down 1.8 per cent Q-o-Q), while it improved for circles - A (+7.9 per cent), B (+8.3 percent), and C (+5.3 percent) Q-o-Q. RJio seems to have lost ground in Delhi (down 286 bps Q-o-Q), Mumbai (down 369 bps), Tamil Nadu (down 144 bps), Punjab (down 123 bps), Haryana (down 175 bps).

 

Bharti’s implied Arpu inched up to Rs 224 (+11 per cent Q-o-Q). RJio’s implied Arpu improved 7 per cent Q-o-Q to Rs 199. VIL continued to lag as its 7 per cent Q-o-Q implied Arpu uptick was offset by a decline in subscribers. Subscriber share gains may have led to revenue gains also for unlisted BSNL.

 

Industry revenue has doubled since September 2019 on three rounds of tariff hikes. The Arpu has almost doubled from Rs 98 in September 2019 to Rs 193 in September 2024. The subscriber base of 1.15 billion in September 2024 is lower than in September 2019 (1.17 billion). Adjusting for growth in M2M and IoT SIMs, the decline in the human subscriber base is higher. Quarterly telecom revenue has almost doubled (up 96 per cent) since Sep 2019, implying a 14 per cent five-year revenue CAGR.

 

Over September 2019-September 2024, Bharti’s revenue has increased 2.6x, implying a 21 per cent five-year revenue CAGR. Similarly, RJio’s saw a 2.4x increase in revenue since September 2019 (19 per cent five-year CAGR). VIL had a more modest gain over September 2019-September 2024 as its revenue inched up by 7 per cent since September 2019, with subscriber loss offsetting tariff hikes.