Airtel and Jio have restricted unlimited 5G connectivity to plans that offer 2GB data per day or more, indicating the beginning of monetising 5G, which will add momentum to ARPUs going forward.
Airtel has also increased tariffs for its voice-only plans by 11% to ₹199, unlike Jio that has left out JioBharat and JioPhone plans. While Airtel and Vodafone Idea’s price hikes are in the range of 10-21%, Jio’s hikes are steeper, at 12-25%.
“Bharti’s and RJio’s new tariff plans will compel higher spend and boost operator ARPU meaningfully despite risks of down-trading and subscriber churn especially if Vodafone Idea does not hike tariff in coming days,” said analysts at CLSA in a note.
The brokerage forecasted that Bharti’s ARPU would increase by 11% to ₹228 this year from ₹209 as of quarter ended March 2024, and to ₹286 by FY27, an increase of 36%. “We also forecast Bharti’s subscribers at 378 million by FY27 from 352 million in 4QFY24,” they added.
Citi Research said it expects Airtel’s ARPUs to rise to ₹235, ₹270 and ₹305 in FY25, FY26 and FY27.
Airtel’s tariff hikes
Airtel has undertaken an average increase of 17% in data prepaid plans, 15% in data postpaid plans, and 11% in voice plans for feature-phone segment. On a blended basis, the average hike comes to 16%.
“We have ensured that there is a very modest price increase (less than 70p per day) on the entry level plans, in order to eliminate any burden on budget challenged consumers,” Airtel said in a statement.
The Sunil Bharti Mittal-promoted telecom services provider said that the mobile ARPU needs to be upwards of ₹300 to enable a financially healthy business model for telcos in India.
“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. In this light, we welcome the announcements in the industry to repair tariffs,” the statement added.
“Staying true to its philosophy of supporting entry level users and progressively linking higher prices to increased usage, changes in entry level plans are nominal,” Vodafone Idea said in a statment on Friday. Jio announced its tariff hike on Thursday, followed by Airtel and Vodafone Idea on Friday.
The ARPU connection
Motilal Oswal Financial Services said in a note that Jio’s tariff hike should increase ARPU by 15% to ₹206, going up to ₹223 in FY25.
“This should drive a 17% increase in our Ebitda estimates, assuming no major subscriber loss for RJio as its plans would be the cheapest and best network among all telcos,” it said, noting a 23% compounded annual growth rate of its Ebitda (earnings before interest, tax, depreciation and amortisation) till FY26.
At present, Airtel and Jio are giving 5G services at the same tariffs as 4G. Airtel’s honcho Gopal Vittal has maintained that the carrier will not charge consumers a differential pricing or premium pricing for 5G services versus 4G services.
Analysts at Axis Capital said they were expecting 5G monetisation since 28% of Jio’s and 22% of Airtel’s data customers were on 5G network.
Making money from 5G
If consumers want to continue using unlimited 5G services, they will need to move to the 2GB a day plan costing ₹349. “Thus consumers will have to pay 46% more to continue using 5G. We see this as a start of 5G monetisation,” said Kunal Vora, Head – India Equity Research at BNP Paribas in a note on Friday.
“There is an increased focus on monetization by increasing the threshold for getting unlimited free data for 5G, which could help in some upgrades, and launching new value-added services for an additional charge,” said experts at Morgan Stanley in a note.
The tariff hikes by carriers and a shift in focus to improving returns on investments by Reliance Jio, specifically, bodes well for the industry, sector watchers said.
Vora of BNP Paribas added that revenue growth is likely to remain in double digits as customers will upgrade to bundled plans, which will also boost free cash flows of carriers. A large part of the tariff hike was factored in by the market, which was seen in the strong rally of telecom stocks. Airtel’s scrip rose more than 71% over last year versus Nifty 50’s 28% gain, he noted.
India Ratings and Research said that the tariff hikes can boost the Ebitda (India wireless) of the three large telcos by 20%-25% or ₹28,800 crore per year. For FY24, combined Ebitda stood at ₹1.16 trillion .
However, the improvement in the Ebitda would be gradual over the next six months. “The tariff-hike bodes well for the telecom sector as it would not only reduce competitive intensity, but also help in improving the return on capital employed of the business post 5G investments” says Priyanka Bansal, associate director, Ind-Ra.
To be sure, hikes will become effective for certain long-duration plans on the next recharge cycle and there could be potential customer churn and downtrading. In the past, tariff hikes had resulted in SIM consolidation, leading to a reduction in the overall customer base.
On Friday, Bharti Airtel’s share price fell 1.8% to ₹1,445.35 and Vodafone Idea’s shares fell 3.35% to close at ₹17.90. Vodafone Idea’s tariff hike was announced after market hours.