Indian telecom operators have begun monetizing their 5G services, implementing a substantial increase in mobile service rates by 15-19 percent starting in July, according to analysts.
Reliance Jio led the charge, initiating an average price hike of approximately 19 percent. Bharti Airtel and Vodafone Idea followed suit with hikes of around 15 percent and 16 percent, respectively. The tariff increases apply to both prepaid and postpaid plans across these operators.
5G coverage
Ericsson’s latest report says 5G subscriptions in India are projected to reach around 840 million in 2029, accounting for 65 percent of mobile subscriptions. 5G subscriptions in India reached 119 million in 2023. 5G penetration in India reached 10 percent by the end of 2023. India has made mid-band deployments, reaching over 90 percent population coverage by the end of 2023.
Increased Price Point for Unlimited 5G Plans
Previously, Jio and Airtel offered unlimited 5G data on plans priced at or above ₹239. With the new tariffs, Jio has announced that only customers on 4G plans offering 2GB/day or more will be eligible for unlimited 5G data, raising the threshold to ₹349.
Bharti Airtel, although not explicitly announced, is expected to implement a similar adjustment, raising its threshold to ₹379. According to Balaji Subramanian at IIFL Securities, this move could encourage some customers to upgrade, enhancing 5G monetization prospects.
Financial Impact and Market Dynamics
Citi Research, in a note said, it has adjusted its EBITDA estimates for FY25-28E, raising them by 3-7 percent due to anticipated ARPU (Average Revenue Per User) increases of 2-6 percent for Vodafone Idea. The target EV/EBITDA multiple has also been increased to 12x, aligning with recent adjustments for Airtel, driven by improved industry dynamics.
Citi Research views Jio and Airtel’s moves to monetize 5G as a positive development. Jio’s minimum monthly plan requirement for 5G benefits is ₹349, while Bharti Airtel’s threshold is higher. Vodafone Idea’s financial leverage remains high but has seen relief through government measures such as a four-year moratorium on spectrum and AGR payments, providing the company with the necessary capital to reinvest in its network and narrow the gap with its peers in 4G and 5G coverage.
This is a structural positive for an industry whose Return on Capital Employed (ROCE) is weighed down by huge investments in 5G roll-out including spectrum purchases.
CareEdge Ratings analysis estimates the revised tariffs will improve the telcos blended average revenue per user (ARPU) by about 15 percent to ₹ 220 in current fiscal 2025 from around ₹ 191 in the fiscal 2024. Its analysis expects every ₹ 1 increase in ARPU to add about ₹ 1000 crore to the industry’s PBILDT.
With 15 percent growth in blended ARPU expected, the expected expansion of PBILDT will aid the telcos to deleverage the capital, technology upgrades and in network expansion. The growth in PBILDT expansion factors in net subscriber addition of 2-3 percent followed fewer consolidations in SIM and adoption of 4G/5G services.
Prasanna Krishnan, Associate Director, CareEdge Ratings, says, “The tariff hikes are expected to increase average revenue per user (ARPU) for the telcos by 15 percent and thereby PBILDT expand by 20-22 percent.”
CareEdge Ratings expects the debt levels to moderate in the current fiscal 2025 and expected to decline going forward with the expected moderation in capex intensity coupled with muted participation in recently concluded June 2024 spectrum auctions. Thereby, the leverage ratio (Debt/PBILDT) of the telcos to improve from 4.35x in fiscal 2024 to 3.8x in fiscal 2025 with the expansion in PBILDT and some moderation in debt level.
Tariff Hikes Overview
Airtel’s and Vodafone Idea’s average prepaid tariff hikes of approximately 17 percent were slightly lower than expected. However, a revenue boost of 14-15 percent, net of down-trading and SIM consolidation, is anticipated to align with estimates, as postpaid tariffs were also raised by 13-17 percent. Despite the unchanged Jio Phone and Jio Bharat Phone plans, estimates for Jio remain steady due to higher increases in other plans. Analysts project another round of tariff hikes in late 2025. The AGR curative petition outcome is the next significant event to monitor.
Jio, Airtel, and Vodafone Idea have announced price increases for most plans, marking the first broad-based tariff hike since December 2021. Effective from July 3rd for Jio and Bharti, and July 4th for Vodafone Idea, Jio’s price hikes for popular 1GB/day and 1.5GB/day plans with 28-day validity are 19 percent and 25 percent, respectively. Plans with higher allowances saw lower increases (13-17 percent), contributing less to overall revenue. For longer duration plans, the price hike is around 20 percent.
Jio’s price increase is applicable to about 90 percent of its mobile revenue base, given that Jio Phone and Bharat Phone account for approximately 10 percent. Airtel and Vodafone Idea implemented 13-21 percent tariff increases on their most popular prepaid plans and ~15 percent on postpaid plans, affecting their entire mobile revenue. Indus Towers is highlighted as a top pick amid these changes.
The recent tariff hikes mark a strategic move by Indian telecom operators to boost revenue and capitalize on their 5G investments, setting the stage for improved financial performance and industry dynamics.
Baburajan Kizhakedath
