The recent tariff hike by telecom operators is poised to significantly impact the Average Revenue Per User (ARPU), a crucial performance metric for the industry. According to a latest report by domestic brokerage firm Centrum Broking, this adjustment is expected to enhance ARPU levels, with visible effects projected for the third quarter of FY25.

The report highlights a steady increase in ARPU driven by several factors. The ongoing migration from 2G to 4G technology and the rising share of postpaid customers are contributing to this upward trend. In the Indian wireless market, Bharti Airtel leads with an industry-high ARPU of ₹211 for the current quarter, a rise from ₹209 in Q4 FY24. In contrast, Reliance Jio reported a flat ARPU of ₹182 per month, remaining unchanged sequentially, while Vodafone Idea Limited (VIL) also reported a flat ARPU of ₹146.

Centrum Broking anticipates that SIM consolidation will be limited this period. However, there are emerging signs of 2G users switching to BSNL, which has kept its tariff plans unchanged, indicating a potential shift in market dynamics.

The expansion of 5G technology is a key development noted in the report. Both Bharti Airtel and Reliance Jio are accelerating their 5G rollouts, with Jio leading by transitioning approximately 130 million subscribers to 5G, compared to 90 million for Airtel. The implementation of 5G has markedly increased the data capacity of telecom operators, contributing substantially to total wireless data traffic.

Operators are taking initial steps to monetize their 5G investments, with unlimited 5G access being offered only on higher-value recharges. This move, alongside previous telecom reforms and tariff hikes in December 2019, November 2021, and July 2024, has contributed to a steady rise in industry ARPU, indicating a stabilization in the sector.

Following the completion of its Follow-on Public Offer (FPO), the Union government now holds around 24% equity in Vodafone Idea (VIL). The company is in discussions with banks to raise ₹250 billion in debt capital, with plans to invest ₹500-550 billion over the next three years to enhance network capacity. VIL has also announced plans to launch its 5G services within the next six months. Despite these advancements, VIL’s net debt remains high at ₹2.0 trillion, with a net debt/EBITDA ratio of 12x based on FY24 EBITDA.

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Indus Towers continues to experience robust demand for tower and colocation services, driven by the 5G rollout. The company is investing significantly in expanding rural coverage. It is expected that the ongoing receivables issue will be resolved with VIL’s successful fundraising efforts.

In terms of investment ratings, Centrum Broking has assigned an 'Add' rating to Bharti Airtel with a target price of ₹1577 per share. In contrast, Vodafone Idea has been given a 'Sell' rating with a target price of ₹11 per share, while Tata Communications has a 'Reduce' rating with a price target of ₹1846 per share. This reflects varying expectations for the future performance of these telecom operators in light of recent developments and market conditions.

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