Tariff plus dimension

If one has to pinpoint the most critical development in the Indian telecom sector in the recent past, the answer would be simple – a modest-to-steep tariff hike, which came into effect around the middle of the last year. The Indian telecom market which, after a decade of bloodbath resulting in the turf opening only for a select few (now often referred as a market of 2.5 players, led by Reliance Jio, Bharati Airtel and a struggling Vodafone or 2.5 plus one players, including government owned firms, which have taken a peripheral positioning), has probably witnessed initiation of a serious consolidation phase last year on the basis of increase in tariffs in the range of 11-27 per cent. 

And this has led to a substantial improvement in the ‘average revenue per user’ (APRU) figures of leading telcos, putting them on course to earn more as the momentum builds in the 5G segment in terms of expansion and adoption. Airtel, for instance, has seen its ARPU shooting up to beyond R230 level around the end of the year (from Rs211 before the price hike). Reliance Jio too has seen its average revenue from a user moving up to Rs195 from Rs182 during the same period. Even the struggling entity Vodafone has seen its ARPU level going up to Rs156 per month from R148. 

As the new circa sets in, the moot point, especially for the consumer class, is: will telcos resort to firming up tariff further in the near run? Most of the analysts and research agencies are ruling it out, even as their ARPU growth seems to be guaranteed as the monetisation effect of last year’s price hike is still setting in. While about 20 million connections have fallen off the grid after the price hike, the offsetting factor is the increasing migration of the users’ better paying capability to the upgraded 5G network. India Ratings’ latest telecom outlook report maintains that any further price hike is unlikely in the coming months.

However, there could be a possible ARPU growth of 5-10 per cent, which would be quite substantial. ARPU growth is also essential, considering the fact that the companies have to recover their high expenditure on 5G rollout in the recent years (both Jio and Airtel have been quite aggressive on this).  “RoCE recovery would be the single most important consideration in all regulatory and corporate decisions in 2025-26,” says Priyanka Bansal, associate director, India-Ratings (Ind-Ra).

While the near-run scene on tariff for consumers and earnings of telcos will be closely examined, there are other critical factors, which will set the direction for the telecom industry. According to an India-Ratings report, two key government decisions in 2025-26 would determine the overall dynamics of the telecom industry over the next two-to-three years. These are:  the stance on converting the statutory liabilities into equity for a large telecom company (obvious reference to Vodafone) and actual deployment of financial support to the two public sector telecom companies (BSNL and MTNL). 

ARPU trends

The direction for providing financial support was envisaged in the Union budget 2025 and, quite surprisingly, BSNL has shown some improvement last year in its performance in terms of adding new subscribers. In 2023-24, it had even shown some marginal profits.  “Both the decisions would meaningfully affect the competitive intensity in the sector, market share shifts, ARPU trends and recovery in return ratios,” the report maintains.

Some of the other critical trends expected in the new year pertains to further expansion of 5G subscriber base with the easy availability of 5G smartphones in the competitive price bracket of just over R8,000. Telcos would also be emphasising on enhancing the penetration of their broadband offerings (close to 16 per cent now), which ensures more revenue than the pure mobility services. Another critical factor in the near run would be how telcos contribute to the evolution of a much improved cyber security regime. The year 2024 has left this message in bold that telcos and their services, a vital cog in the rising incidents of cyber-crime, will have to go that extra mile creating a sound deterrent mechanism to deal with this challenge which has assumed a perpetual character. Meanwhile, the outlook seems quite weak for telecom tower companies as the 5G led expenditure cycle has been completed by leading telcos.