Airtel ARPU likely to grow 7-10% in 12-18 months, stable market backs tariff hike: Analysts

Airtel ARPu

Bharti Airtel’s average revenue per user (ARPU) is expected to grow by 7-10 percent in the next 12-18 months with its focus on subscriber premiumisation as users transition from feature phones 4G and 5G smartphones, analysts said.

The Sunil Mittal-led telco’s focus on the feature to smartphone migration and premium users has helped it uplift blended ARPU even without tariff hikes, Axis Capital said in its analysis.

“There is also the benefit of subscriber premiumisation within the smartphone segment from prepaid to postpaid and within the postpaid base as subscribers progressively consume more data and services.”

The current stability in the Indian telecom market is expected to be sustained, supporting a tariff hike. However, the hikes in the next 9-12 months are unlikely, Axis said.

“With the top-two players controlling 78 percent of the overall market and a severely weakened Vodafone Idea, we expect a stable competitive environment and tariffs to continue to rise in the medium term,” Axis Capital said in a note.

“At the same time, we believe that tariff hikes in the next 9-12 months are unlikely. This is because VIL’s relatively weak 5G offering leaves its high-end subscribers (postpaid and creamy prepaid data subscribers) susceptible to migrating to the stronger Airtel/Jio as and when they upgrade their handsets to 5G,” it said.

The process of sector repair began in December 2019 with the first set of tariff hikes. Additional hikes followed this in 2021 and 2022. The entry-level voice and data rates have risen 35-420 percent. “Bharti’s ARPU has risen around 60 percent during the same period,” Axis said.

The brokerage estimates Bharti Airtel’s consolidated revenue will grow 11 percent CAGR (FY23-26), supported by all the India segments sans DTH. This and margin expansion in India mobile from rising 5G network utilisation should lead to a 13 percent average growth in EBITDA. “We expect FY23-26 revenue, EBITDA, and net profit CAGRs of 11 percent, 13 percent, and 35 percent, respectively,” it added.

Telecom operators in markets where 5G was launched three to four years back, such as the US, China, Taiwan, South Korea, Singapore, etc have seen an uptick in revenue growth. This happened due to increased/unlimited data allowances (30-120 percent increase in per-user data usage after 5G launch), tiered speeds, and other value-added services like on-demand enhancement in network performance.

“India, too, should see a similar surge in data usage notwithstanding the high data usage rates. The ARPU uptick will not happen on 5G being priced differently but on operators leveraging 5G’s higher capacity and speed to offer higher/unlimited data allowances on premium plans,” Axis said.

Airtel's recent launch of Fixed Wireless Access (FWA) service will help the telco’s home service segment’s revenue grow by 70-90 percent (vs FY23) and will also be margin-accretive, Axis said.

Reliance Jio has commercially launched the service, while Bharti Airtel should do a pan-India launch in early 2024.

“From an operator perspective, it is capex-light, helps improve network utilization, and reduces time to market vs fiber broadband. From consumer's perspective, they get broadband access, which may not have been possible in some cases on fibre due to commercial considerations or difficulty in getting right-of-way for rolling fiber networks. It is already a mainstream service across many markets, with the US at the forefront, where more than 90 percent of its broadband subscriber additions now come on FWA. FWA is a win-win for telcos and subscribers,” the brokerage said.