Telecom tariff hikes and 5G expansion boost ARPU

Indian telecom operators, said by CRISIL Ratings, raised tariffs by 10-25%, targeting a 25% ARPU increase by fiscal 2026. This mirrors global trends with expanding 5G networks and rising ARPU fueled by premium subscriptions and device fees.

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The recent tariff hikes by telecom operators in the range of 10-25% and growing data consumption will lift the average revenue per user per month (ARPU) of Indian telecom companies by approximately 25% in fiscal 2026 compared to fiscal 2024, said CRISIL Ratings. This, along with lower capital expenditure due to the completion of 5G rollouts and limited spectrum renewals, will enhance return on capital employed (RoCE) and support deleveraging in the industry, improving credit profiles.

The top three telecom players, Reliance Jio, Bharti Airtel, and Vodafone Idea (Vi), recently announced a substantial increase in tariffs across their prepaid and postpaid plans. Tariffs were last raised in November 2021 and December 2019. “The industry ARPU should dial up to a decadal high of Rs 225-230 by the end of next fiscal compared with Rs 182 last fiscal,” said Manish Gupta, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings. This increase is driven by tariff hikes and organic growth in data usage amid increasing 5G penetration. Customers are upgrading their plans due to rising content consumption via video streaming, social media, and online gaming, resulting in higher ARPUs.

ARPU growth will be gradual as the tariff hike becomes effective on the next recharge cycle for long-duration plans. Improved operating profitability should lift the industry RoCE to approximately 11% next fiscal from around 7.5% in fiscal 2024. The capex intensity, which averaged around 28% over the past three fiscals, is expected to drop to about 19% by next fiscal as most companies have completed their 5G rollouts. Network capex for fiberization of telecom towers, base transceiver stations, and small cells will continue but at a slower pace. New spectrum capex will also reduce since most purchases were completed in fiscal 2023, with the next significant spectrum renewal due in 2030.

“The moderation in capex and healthy profitability will enable telcos to reduce their debt to ~Rs 5.6 lakh crore next fiscal from a peak of ~Rs 6.4 lakh crore in fiscal 2024,” said Anand Kulkarni, Director, CRISIL Ratings. Debt reduction will help the industry improve debt-to-Ebitda to less than 3 times next fiscal year from ~4.3 in fiscal 2024, improving credit risk profiles.

Globally, telecom markets are seeing similar trends with 5G networks expanding and driving service revenue growth. Around 290 5G networks have been launched commercially, with global 5G subscriptions reaching 1.6 billion, or 18% of all mobile subscriptions. Global ARPU has grown at a CAGR of 1.7% per year since 2020, driven by the shift to higher-value postpaid subscriptions and additional fees for devices like smartwatches and IoT devices. Service providers must continue to innovate and explore new ways to drive profitable growth amid the evolving market dynamics.