Telcos turn to monetisation from market share as Jio, Airtel complete city coverage: Analysts

With tariff hikes, and urban 5G coverage, telcos are shifting focus on ARPU.

The telecom industry is shifting its focus from market share to sustained monetisation cycle with Reliance Jio and Bharti Airtel completing their urban 5G rollouts, analysts said, adding that telcos will now be looking at a higher tariff of 20-25 percent, compared to the earlier expectation of a 15 percent hike.

With tariff hikes, and urban 5G coverage, Indian telcos are shifting focus on ARPU improvement, besides driving 5G use cases like FWA to develop new revenue streams for return on its investments, they said.

“The current cycle in the Indian telecom industry is marked by optimism regarding tariff repair and a return to growth. Once the urban 5G coverage rollout is complete, we expect the operators to shift focus on ARPU and return ratio (ROCE) improvement,” analysts at Bernstein said in a note.

As 5G matures, consumer demand grows, and new use cases emerge, the industry will gradually see a new revenue stream and return on its investments.

“We expect tariff hikes to be announced after the elections and expect a higher tariff increase of 20-25 percent... The tariff hike will likely be led by Airtel now… We expect Jio to follow in the tariff hike as it is close to its target of 50 percent market share (46 percent now) and should position it well for a potential Jio IPO in early 2025,” the Bernstein analysts wrote.

The analysts said that the Indian telecom market is expected to consolidate further, as Vodafone Idea subscriber churn remains high, despite the funding, which is not enough to be competitive. “The funding would enable Vodafone Idea to expand its 4G network, roll out 5G services and reduce the pace of the subscriber erosion. However, we believe fund raise is not large enough to have a significant impact on the industry dynamics and VI’s debt position,” the Bernstein analysts noted.

The Indian telecom market has changed significantly from 12 players five years ago to three private players today. Over the last few quarters, Bharti Airtel and Jio have gained revenue market share to 36 percent and 47 percent, while the same for Vodafone Idea is pegged at 17 percent.

In terms of 5G monetisation, Jio seems to be making progress with its Fixed Wireless Access (FWA) broadband service, JioAirFiber across the country. Analysts said that the unavailability of 5G SA or standalone – a superior version of 5G – has so far resulted in a lack of enterprise use cases, impacting monetisation. To be sure, only Jio has 5G SA deployed across the country, while Airtel’s 5G is powered by the NSA technology.

“SA 5G monetisation was expected through enterprise but FWA has taken the lead… A pushback against 5G SA has been lack of enterprise cases, with NSA considered adequate for B2C. Globally, while enterprise uses cases are not yet mainstream, FWA has gained user traction and could become a ‘killer app’ for 5G monetisation,” Axis Capital analysts said in a note.

India has seen both Jio and Bharti launch FWA though Jio is ahead with its footprint over 7,000 towns as against Bharti Airtel’s 25 cities. “We had seen positive user traction for FWA in channel checks in March 2024,” Axis Capital analysts added.

While being an attractive proposition to monetise 5G, FWA has seen concerns over network congestion and consistency, especially with the service powered by non-standalone or NSA 5G technology.

“Jio’s 5G SA circumvents this by allowing better network slicing, which helps manage network congestion between mobile and FWA traffic. While it is still relatively early days for 5G, as per a study by Opensignal, Jio has consistent service quality for 5G mobile and FWA even in areas with relatively high FWA penetration. Note that the average FWA consumption is 400 GB per month as against 29 GB per month for Jio as a whole,” Axis Capital analysts said.

They noted that India has all the ingredients for FWA to become mainstream such as low broadband penetration, inadequate last-mile fibre and costly right of way.