Driving growth − Tariff hikes in Indian telecom market

In July 2024, all the private Indian telcos announced a tariff hike – a first in over 10 quarters as the last tariff hike was rolled out in December 2021. The telecom industry witnessed a significant shift to data-led services during this period with the world’s fastest 5G network rollout. Now, India has become one of largest markets for 5G smartphones, second only to China. With the proliferation of digital services, telcos are investing significantly in upgrading their infrastructure. Tariff increase was imminent – a move welcomed by investors to achieve sustainable growth with investment in the sector.

India – A thriving mobile economy
Over the past decade, the Indian telecom market has experienced robust growth. Tariffs dropped by 94 percent. Low tariffs have been the key driver for propelling the sector to new heights, surpassing 1 billion cellular connections at the start of the year, covering 85 percent of the population.¹ The market is poised for continued expansion, with data consumption anticipated to surge to 75 GB per month by 2030 from 24 GB per month in 2023.² The smartphone uptake is growing exponentially and is expected to capture 15 percent of the global market by 2032, making India the third-largest market globally.³ This growth will be fuelled by rising per capita income, increasing 4G penetration, advancements in 5G technology, and improvements in digital infrastructure.

India stands out for its remarkably low mobile tariff prices globally. According to the International Telecommunication Union (ITU) 2023 report.^4,5

• India’s mobile services are among the cheapest, with a basic package including 140 minutes, 70 SMS, and 2GB costing a mere ~US$1.9 (INR 157).
• In contrast, much smaller neighbouring telco markets such as Afghanistan, Bhutan, Bangladesh, and Nepal have higher prices ranging from about US$2.7 to US$8.8.
• Larger telco markets like China, the US, the UK, Germany and Russia have significantly higher tariffs, ranging from US$6.5 to US$49.0.

ICT price basket, Mobile data and voice high-consumption basket, 2023

Source: ITU

Tariff increase – Much needed boost to the industry
In 2016, when a green-field operator launched its 4G services for free initially and then at substantially lower rates than competitors, India’s telecom sector became the world’s most affordable for data, catalyzing widespread internet accessibility. Despite no tariff increases since 2021, telcos have invested heavily in infrastructure, incurring high CapEx, especially in 5G spectrum, totaling around Rs 1.5 trillion (USD 18 billion) for acquisitions⁶ in 2021 and over Rs 113.4 billion (12 percent of the government’s reserve price of Rs 962.4 billion) in recent Jun’24 auctions.⁷ Yet, the returns on these investments have been modest.

• Currently, average revenue per user (ARPU) in India ranges from Rs 140 to Rs 200, much below the global average of Rs 600 to Rs 850.⁸
• As per ICRA, the industry’s total debt has shot up to ~Rs 6.4 trillion as of Mar’23. The industry would be entailing a CapEx of ~Rs 3 trillion over the next 4–5 years for 5G deployment.⁹

Responding to financial pressures and the need to monetize 5G services, India’s top telecom operators announced tariff hikes effective from Jul’24.¹⁰

Positive impact on telcos – Boosting ARPU and EBITDA expectations
The tariff hike is projected to increase the telcos’ blended ARPU by approximately 15 percent to Rs 220 in FY25 from around Rs 191 in FY24.

The sector’s debt levels are anticipated to be moderate in FY25 and are expected to decrease further as CapEx intensity moderates. The leverage ratio (debt/PBILDT) is set to improve from 4.35× in FY24 to 3.8× in FY25 with the expansion in PBILDT and some moderation in debt level.¹¹

EBITDA (wireless) for India’s top three telcos is projected to grow by 20–25 percent in the next six months. Monitoring is essential as tariff adjustments affect customer retention and trading patterns post recharge cycles for long-term plans.¹² However, SIM consolidation impact should be minimal as most consolidation has occurred, and lower downtrading risks are anticipated as data usage is turning sticky. Consequently, telcos are expected to effectively absorb these hikes.¹³

Impact on customers – Tariff hikes likely to be absorbed well¹⁴
The tariff adjustment was essential to improve service quality, extend coverage, and boost ARPU, with telecom operators needing additional incremental increases for financial sustainability. Furthermore, as per a survey, 70% of the Indian customers are ready to embrace the tariff hikes, provided it helps in improving quality of service.

Customer survey on the impact of tariff hikes

Source: BofA

Impact on overall telecom industry – Driving enhanced customer experience
Tariff hike comes as a much-needed step in the right direction for the industry when all the major telcos have achieved consensus on this decision. This may set to become a norm going forward to factor in the market conditions and for RoCE realizations. Regular tariff hikes will not only help to improve ARPUs but also enhance return on capital employed (RoCE), resulting in lowering of sector debt. It will enable cash flows for telcos to invest in development of telecom infrastructure, spectrum buys as well as innovations in network, leading to a better customer experience.

In conclusion, as the communications minister recently said that telecom drives the economic destiny of nations and India is on the cusp of a new revolution – India, which was a follower in 3G, was marching along in 4G and 5G, today has the ability to lead the world in 6G. For this to happen, telcos need continuous investment in newer technologies and need to have enough cash flows to support the ambition.

1 “DIGITAL 2024: INDIA”, DataReportal, https://datareportal.com/reports/digital-2024-india#:~:text=Mobile%20connections%20in%20India%20in,total%20population%20in%20January%202024., accessed 8 July 2024
2 “India needs Rs 4.2 lakh cr investment to connect 24 cr households with broadband by 2030”, The Economic Times, https://economictimes.indiatimes.com/industry/telecom/telecom-news/india-needs-rs-4-2-lakh-cr-
investment-to-connect-24-cr-households-with-broadband-by-2030/articleshow/110088564.cms?from=mdr. accessed 8 July 2024
3 “India’s smartphone market set to surge”, Morgan Stanley, https://www.morganstanley.com/ideas/india-smartphone-market-growth, accessed 8 July 2024
4 “India’s Mobile Services Tariffs Among Lowest In World: Govt”, Business World, https://businessworld.in/article/indias-mobile-services-tariffs-among-lowest-in-world-govt-525346#:~:text=According%20to%20the%20International%20Telecommunication,
costing%20only%20around%20Rs%20157., accessed 8 July 2024
5 “POLICY BRIEF – THE AFFORDABILITY OF ICT SERVICES 2023”, ITU,
https://www.itu.int/en/ITU-D/Statistics/Pages/ICTprices/default.aspx, accessed 8 July 2024
6 “India’s Jio, Bharti Airtel, Vodafone Idea hike call tariffs for first time in three years”, Reuters, https://www.reuters.com/business/media-telecom/indias-bharti
-airtel-hike-mobile-tariffs-july-3-2024-06-28/., accessed 8 July 2024
7 “Why tariff hikes by Airtel, Jio,Vi were inevitable”,
The Indian Express, https://indianexpress.com/article/explained/explained-economics/tariff-hikes-by-bharti-airtel-reliance-jio-inevitable-arpu-9420265/, accessed 8 July 2024
8 “Telcos want to fork out an extra ₹100 from subscribers in 2024”,
The Hindu, https://www.thehindu.com/business/telcos-want-to-fork-out-an-extra-100-from-subscribers-in-2024/article67713629.ece, accessed 8 July 2024
9 “INDIAN TELECOM INDUSTRY”, ICRA, https://www.icra.in/Rating/DownloadResearchSummaryReport?id=5596, accessed 8 July 2024
10 “Tariff hikes to raise ARPU by 15 pc, help expand operating
profits for telcos: Report”, The Economic Times, https://economictimes.indiatimes.com
/industry/telecom/telecom-news/tariff-hikes-to-raise-arpu-by-15-pc-help-expand-operating-profits-for-telcos-report/articleshow/111410858.cms?from=mdr, accessed 8 July 2024
11 “Tariff hikes to raise ARPU by 15 pc, help expand operating profits for telcos: Report”, The Economic Times, https://economictimes.indiatimes.com/industry/telecom/telecom-news/tariff-hikes-to-raise-arpu-by-15-pc-help-
expand-operating-profits-for-telcos-report/articleshow/111410858.cms?from=mdr, accessed 8 July 2024
12 “Tariff Hikes by Telcos Could Boost EBITDA by 20%-25%”, India Ratings and Research, https://www.indiaratings.co.in/pressrelease/70660, accessed 8 July 2024
13 “1Q preview: A stable quarter; Focus on tariff hike flow-through”,
Analyst report, BofA securities, LSEG Workspace (Refinitiv), accessed 8 July 2024
14 “Survey insights: Tariff hike likely to be absorbed well; 5G usage improving”,
Analyst report, BofA securities, LSEG Workspace (Refinitiv), accessed 8 July 2024