Coming in FY25: Tariff hikes, 5G monetization, Vi 2.0
A tariff hike is near certain after Reliance Jio reported flat Arpu for two straight quarters.
Telecom majors Reliance Jio and Bharti Airtel, that have been responsible for the world’s fastest 5G rollouts, are likely to begin monetization of the networks even as they, along with Vodafone Idea (Vi) raise headline tariffs by as much as 20% soon after the general elections, said analysts and brokerages.
A rise in tariff levels has become almost a certainty after Reliance Jio, the country’s largest telecom services provider by subscribers, reported flat average revenue per user (Arpu) for two consecutive quarters on Monday. Arpu is a critical metric of profitability for telcos.
“We do expect both Jio and Bharti to start monetizing 5G in the coming quarters, which along with tariff hikes should help expand Arpu,” said analysts at Axis Capital in a note. “As 5G starts getting monetized—we expect should happen in the next 3-6 months—this pressure is likely to alleviate and reflect in organic Arpu increase. This, too, would help increase Arpu (along with the likely tariff hike),” they added.
Jio said on Monday during its results for the March quarter that 5G data was currently 37% of the total data consumed on its network. Sector watchers said that this too was leading to near-term pressure on Arpu.
“Tariff hikes, Jio pushing its 5G fixed wireless and Vodafone Idea beginning its 5G deployments, were the key developments expected in the coming quarters,” said Rohan Dhamija, managing partner at Analysys Mason.
“We expect two rounds of tariff increases in the next three years (with the first one imminent after the elections). This would help shore up Jio’s return ratios in the run-up to the likely IPO preparation of Jio Platforms,” said analysts at IIFL Securities in a note. They added that blended Arpu, including mobile and fibre to the home, estimates for FY25 and FY26 were ₹200 and ₹224, far higher than ₹181 in FY24.
“5G monetization in the mobile segment could support Arpu trajectory for Bharti Airtel as well,” said analysts at Jefferies.
Currently, Jio and Airtel do not charge users a separate or higher tariff for using 5G services and have been levying the same tariffs as existing 4G tariffs since the launch of their services last year. Anshuman Thakur, senior vice president at Jio Platforms Ltd has said previously that Arpus were not showing the full effect of 5G since the service was being offered free of charge, indicating that chargeable 5G services would contribute to Arpu uptick.
Airtel’s chief executive Gopal Vittal, on the other hand, has maintained that it will not charge a premium for 5G services, but has backed the need for Arpus to rise for adequate returns on capital employed, especially after pumping in billions of dollars to set up the 5G networks that includes high-priced 5G spectrum.
“Given that 5G is being offered for free, Arpus have limited room to expand without tariff hikes. We raise our Arpu estimates by 1-2% and expect Arpus to grow by 9% CAGR over FY24-27 to ₹235 by FY27 led by a 20% tariff hike in 2QFY25 (July-September) and 10% in 2QFY27,” it added, giving estimates for Jio. Airtel’s Arpu stood at ₹208 as of December 2023.
Arpus are expected to rise at 10% CAGR over FY23-28 given the industry structure, future investment needs, and the need to avoid a duopoly market, said analysts at JM Financial.
“With the Vodafone Idea FPO being successful, chances of an industry-wide tariff hike in H2CY24 have increased— which should help improve the returns profile of telecom companies,” said analysts at Nuvama Institutional Equities.
Vodafone Idea’s ₹18,000 crore follow-on public offer was subscribed nearly seven times led by qualified institutional buyers and anchor investors that together bid for over ₹88,000 crore, Mint reported on Tuesday. The No. 3 carrier will spend a large chunk of the FPO proceeds towards improving 4G coverage and setting up 5G networks during the year.
Analysts at Goldman Sachs said they expect a 15% tariff hike between July and March, of similar magnitude as previous hikes. Carriers raised headline tariffs by 20-40% in December 2019, the first time after Jio launched its services in 2016 and made voice a free service. This was followed by another hike, this time of 20%, in December 2021.
“We also see the possibility of another round of tariff hike in FY26, as Vodafone Idea requires to make payment for AGR/spectrum dues from H2FY26 once the moratorium ends,” said analysts at Emkay Securities. Vodafone Idea is saddled with ₹2.1 trillion debt, of which ₹1.9 trillion is owed to the government in the form of revenue share under AGR and spectrum bought from the government. Currently under a moratorium since early 2022, the payments are due from FY26.
37% of total data consumed on Jio’s network is 5G
₹18,000 cr Vi’s FPO was subscribed nearly seven times