Telecom service providers can expect an average revenue per user (Arpu) growth at a compound annual growth rate (CAGR) of around 10% over the next three years, driven by frequent tariff hikes and improving customer mix, according to analysts.
The sector is also expected to benefit from rising data consumption trends, leaving scope to monetise high-cost investments such as 5G using fixed wireless access (FWA), they added.
Lower penetration of telecom services at around 85% will also provide headroom for growth in the coming years, according to the analysts at Centrum.
“Customer mix in the Indian telecom sector is mainly prepaid (90%+); Postpaid customers are steadily increasing and it is a long-term trend,” they said.
All the three private telcos have maintained focus on migrating customers to higher Arpu postpaid services using value-added services like bundled entertainment offerings and international roaming services.
Over the past 7-8 years, telcos have been migrating 2G users to 4G, and the trend is expected to result in the 2G user base becoming negligible over the next 5-6 years.
According to analyst estimates, India has around 250 million 2G customers with 23% in Airtel’s subscriber base and 40% in Vodafone Idea’s. The remaining are with state-owned BSNL.
Another lever for growth will come from the monetisation of 5G technology which so far has been provided to consumers at negligible additional cost. While the July 2024 tariff hikes did see attempts to charge for 5G packs, the main thrust for monetising 5G is expected to come from the FWA offerings, the experts said.
According to a recent report by Nokia, 5G subscribers in the country rose to 290 million by the end of 2024, more than doubling from 131 million a year ago. Of 290 million, 170 million are on Jio’s 5G network, while the rest are on Airtel’s. With Vodafone Idea launching its commercial 5G services in March, the sector is expected to add 120 million 5G users going forward.
Both Jio and Airtel are making efforts to push their FWA services, which is expected to improve the home broadband connectivity business. While in places where fibre penetration is adequate, telcos continue to grow their FTTH (fibre to the home) pie, FWA, which uses 5G airwaves to provide connectivity in buildings can help reach places where fibre penetration lags, analysts observed.
“Reliance Jio’s 5G FWA subscribers at 4.5 million are multiplying and in the latest quarter accounted for 85% of home additions. Also encouragingly 70% of new 5G FWA subscribers are coming from beyond urban India,” CLSA said in a recent report.
Currently, Jio leads the home broadband market with 17 million homes, nearly double of Airtel’s 9.2 million homes. The two together account for nearly 60% of India’s home broadband userbase.
India has around 900 million 4G/5G subscribers with mobile broadband penetration at 80% of the total 1,143 million mobile subscribers. However, at 46 million including 5G FWA homes, the penetration of home broadband is around 15% of the total over 300 million households which provides an immense opportunity for growth, analysts said.
“We believe the best is ahead for RJio’s and Bharti’s homes business opportunity where growth is now accelerating driven by fast-paced adoption of 5G FWA alongside even changing content consumption preference of households,” the analysts at CLSA added.