The Indian telecommunications industry is undergoing a fundamental transformation, driven by an unprecedented surge in data consumption. Over the past decade, India's per capita data consumption has skyrocketed, rising an astonishing 288-fold. This explosive growth is largely driven by the widespread affordability of smartphones, the rapid expansion of 4G and 5G networks, and the rise of large traffic generators (LTGs). With the Covid-19 pandemic fuelling further reliance on digital platforms, monthly data consumption per user has ballooned from a modest 60 MB in 2013 to an extraordinary 17,360 MB by 2023.
However, despite this massive increase in data usage, the average revenue per user (ARPU) has inched up by only 1.25 times. The cost per gigabyte of data has remained stagnant at approximately Rs 10 since 2018, revealing a deep disconnect between consumer demand for data and the financial returns for telecom service providers or TSPs. This growing disparity presents a significant challenge to the long-term sustainability of the telecom sector.
A recent study by the Centre for Digital Economy Policy Research (C-DEP.org) offers an insight into these emerging trends, shedding light on the increasing pressure faced by TSPs as data traffic grows exponentially, outpacing revenue growth. Jaijit Bhattacharya, Founder and President of C-DEP, underscores the dilemma: "TSPs may have to choose between slowing network speeds or raising prices for all customers, even those who don’t rely on data-heavy services. This not only affects user experience but also threatens the 'Digital India' vision of affordable internet for everyone."
What’s the Solution?
To combat these challenges, the report advocates for a "fair share framework" as a means to balance the scales. This approach calls for a fair contribution from LTGs, ensuring they pay proportionally to the vast amount of data they generate. Notably, this model aligns with India's net neutrality laws, such as the Prohibition of Discriminatory Tariffs for Data Services Regulations 2016. Rather than penalising LTGs based on their content offerings, this framework focuses purely on data volume. "Only platforms generating significant traffic would be required to contribute," explains Bhattacharya. "This ensures fairness, protects smaller players, and safeguards the open internet."
While TSPs have successfully managed data demand in recent years, the post-pandemic surge and growing reliance on data-intensive platforms have exacerbated the financial strain on telecom providers. "The government must act now to ensure the long-term viability of the telecom sector," warns Bhattacharya, citing the need for proactive measures to address the challenges posed by disproportionate data traffic. As the sector continues to evolve, the adoption of the fair share framework could pave the way for a more sustainable revenue model that benefits all stakeholders—TSPs, LTGs, and consumers alike.
Data Vs ARPU Debate
On July 19, when Reliance Jio Infocomm declared its financial results for the first quarter of FY 2024-25, it emerged as the world's largest telecom operator by data usage. With 45 exabytes of data consumed on its network during the April-June quarter—representing a 33 per cent year-over-year increase—Jio surpassed global competitors, including those in China.
However, a key concern remains the stagnation of ARPU, which has remained flat at Rs 181.7 for three consecutive quarters. Analysts predict that the impact of recent tariff hikes by telecom operators, including Jio, will only be reflected in ARPUs starting from the quarter ending in September. Additionally, Jio has yet to introduce separate charges for its 5G services, which could further influence ARPU in the future. Despite these challenges, Jio’s recent 13-25 per cent tariff hikes are expected to boost profitability for both the company and the broader industry.
Having disrupted India’s telecom market in 2016 with free or low-cost services, Jio now stands at the forefront of global data consumption, while working to improve its revenue per user through strategic pricing adjustments. However, Jio’s global leadership in data traffic has coincided with a strong financial performance, as Jio reported a 10.15 per cent increase in revenue and a 12 per cent rise in net profit, beating market expectations for the quarter.
Rival Bharti Airtel reported better numbers for the first quarter. Airtel’s consolidated net profit for the first quarter rose more than two-and-a-half times from a year earlier and doubled sequentially, helped by an exceptional gain, along with an improvement in its ARPU and lower finance costs.
The nation’s second-largest telecom operator posted a consolidated net profit of Rs 4,159.9 crore after factoring in a net exceptional gain of Rs 735 crore in the quarter ended June 30. The Sunil Mittal-led telco’s consolidated revenue rose 3 per cent from a year earlier to Rs 38,506.4 crore, with currency devaluation in Africa weighing on the growth, the company said.
In the first quarter of FY25, Airtel reported steady growth, driven by robust mobile broadband user additions and higher data consumption. India mobile revenue, which accounts for 78 per cent of the company's total revenue, grew 10 per cent y-o-y to Rs 22,527.4 crore. This increase is attributed to the ongoing shift from 2G to 4G/5G services and strong post-paid user growth. However, the full impact of the recent price hikes will only start reflecting in the second quarter of the fiscal year, experts said. Airtel’s reported ARPU, a key performance metric, saw a modest rise from Rs 209 in the March quarter to Rs 211, further supported by the company's mobile broadband expansion and enhanced service offerings.
Bharti Airtel Managing Director Gopal Vittal highlighted the company's solid performance, stating, "Q1FY25 was yet another steady quarter, with India revenue growing 1.9 per cent sequentially and sustained Ebitda margin expansion to 53.7 per cent. Our stringent focus on driving cost efficiencies is reflected in strong operating leverage." But increasing ARPU is a top priority for the telecom operators. “We continue to believe that industry needs over Rs 300 ARPU at the minimum for financial stability,” Vittal said after the first quarter results.
The Way Forward
ARPU is a critical metric in the Indian telecom sector, reflecting the revenue generated per subscriber and serving as a key indicator of a company’s financial health. For telecom operators like Jio, Airtel, and Vodafone Idea, increasing ARPU is key to sustaining profitability in an intensely competitive market. Despite exponential growth in data consumption, ARPU levels have remained relatively stagnant due to low tariffs and the high volume of low-revenue subscribers.
To increase ARPU, telecom companies must adopt a multi-faceted approach. First, implementing targeted tariff hikes, particularly for premium services such as 5G, can boost revenue without alienating price-sensitive customers. Offering bundled services like OTT platforms, cloud storage, and enhanced broadband packages can also incentivise higher spending per user. Additionally, converting 2G users to 4G/5G networks will increase data consumption, driving ARPU growth, experts note.
A future increase in ARPU is crucial for telecom companies to manage the growing costs of network expansion, spectrum purchases, and 5G rollouts. With significant debt burdens and rising operational expenses, enhancing ARPU will be a key lever to improve margins and ensure long-term sustainability.
The big question, however, remains: Will increasing the ARPU see a backlash especially when the issue gets the backing of the political class? Increasing ARPU without increasing tariffs is a conundrum the telecom operators have to solve unitedly. “People do pay a premium for Business Class/1st AC while travelling. A mid-way solution lies in charging more to the 5G subscribers while encouraging the 2G/3G subscribers to adopt 4G/5G services. Of course, the quality of basic services like calls etc. needs to improve substantially for this,” says a senior analyst who tracks this space. Watch this space for developments pertaining to telecom tariffs.
