The trends in the third quarter (Q3) of FY2025 (October-December 2024) indicate that tariff hikes have had a positive impact on the financials of telecom service operators. All three private operators (that is, Bharti Airtel, Reliance Jio and Vodafone Idea Limited [Vi]) have seen improvements in the ARPU, as revenue and operating profit growth rates have accelerated. While the Bharti Group (Airtel and Hexacom) has gained the most among operators, Indus Towers is likely to see future growth driven by Vi’s accelerated service roll-outs.

Bharat Sanchar Nigam Limited’s (BSNL’s) performance has been covered in more depth in the editorial letter. The government-run telco has delivered enhanced performance. It has also started to roll out 4G and fibre services, and has gained subscriber share on the basis of its economical tariff plans. However, BSNL continues to face challenges, though it could play a critical role in the future, particularly in expanding rural connectivity via fibre.

The three private operators reported a 16 per cent aggregate revenue growth in Q3 FY2025, compared to Q3 FY2024. This is a significant improvement over the 8-9 per cent growth observed before tariff hikes. Higher revenue growth has also led to accelerated growth in earnings before interest, taxes, depreciation and amortisation (EBITDA) (operating profit),
with Airtel benefiting the most as compared to its peers.

Airtel’s revenue has grown 16.6 per cent year on year over the past two quarters, while Jio’s revenue has grown 10.7 per cent and Vi’s 5.8 per cent, resulting in a significant gain in revenue market share. Hence, Bharti Hexacom Limited’s EBITDA rose by 13.9 per cent quarter on quarter, Bharti India’s EBITDA rose by 9.1 per cent quarter on quarter, Jio’s EBITDA grew by 3.8 per cent quarter on quarter, and Vi’s EBITDA rose by 3.6 per cent quarter on quarter.

Another important trend is that Airtel and Jio are now entering a phase of capex moderation, with their respective 5G network roll-outs almost completed, in line with management guidance. The pan-Indian 5G roll-out was completed by December 2023 for Jio and March 2024 for Bharti Airtel and Hexacom.

These two companies expect the long-term capex-to-sales ratio to stabilise at 15-20 per cent of revenue (which is in line with global peers), whereas capex was at 30-50 per cent of revenue during the roll-outs. Airtel’s capex in FY2025 is below the FY2024 levels, with similar trends expected, where FY2026’s capex dips below FY2025 levels.  Jio’s capex ex-spectrum is anticipated to be around Rs 295 billion per annum in FY2025 and FY2026, compared to Rs 450 billion-Rs 550 billion in the past two years.

Airtel plans further major network expansion in five key circles where its tower footprint is smaller than Jio’s. Bharti’s India business capex was at Rs 334 billion in FY2024 and Rs 281 billion in FY2023 due to 5G roll-outs, but it has moderated to Rs 199 billion in the first nine months of FY2025.

Post-tariff hikes, private operators saw a decrease in subscribers in Q2 of FY2025 as some subscribers switched to BSNL. Nevertheless, net additions resumed in Q3 FY2025 for Airtel and Jio, while Vi continued to lose subscribers. Overall, Airtel and Jio continued to gain data volumes, while Vi’s remained flat. Airtel’s data subscriber gains as well as data usage per subscriber were both significantly higher than Vi.

Vi has begun investing in its 5G roll-outs while enhancing its 4G network. It accelerated its capex in Q3 FY2025, and expects further increases in Q3 FY2025 and FY2026. Vi’s capex rose to Rs 52 billion in the first nine months of FY2025, and the company expects to close this year at a capex of Rs 100 billion. Vi has projected a total capex of Rs 500 billion over the next three years. This increased capex could help mitigate market share losses, with the commercial launch of 5G services planned for March 2025 in Mumbai, followed by Delhi, Bengaluru Chandigarh and Patna in April 2025.

Airtel’s tower additions may moderate going forward, while Vi’s network investments are boosting Indus Tower’s colocations. For Jio, growth is being driven by revenue from “other digital services”, such as content, enterprise and support services.

The industry’s EBITDA has risen over the past few years, driven by tariff hikes and increasing data consumption. For Vi, the increase in ARPU has been offset by subscriber loss. The combined mobile revenue of the top three telcos grew 16 per cent year on year to about Rs 667 billion ($7.7 billion) in Q3 FY2025. Bharti Airtel’s mobile revenue growth was the highest at 21 per cent year on year, followed by Reliance Jio at 16 per cent and Vi at 4 per cent.

Airtel added the most subscribers, around 4.9 million and reaching 357 million. Jio gained 3.3 million subscribers, reaching 482 million, and Bharti Hexacom reported a gain of 0.5 million, reaching 28 million subscribers. However, Vi’s subscriber loss continued, reporting a loss of 5.2 million subscribers (losing 5.1 million in the previous quarter as well), dipping to a base of 200 million.

Bharti’s mobile EBITDA growth of 30 per cent year on year was 13 per cent higher than Reliance Jio’s. In terms of ARPU, Bharti reached Rs 245 (with Hexacom at Rs 241), while Jio was at Rs 203 and Vi was at Rs 183, with all three telcos registering substantial gains. The full positive impact of Jio’s July 2024 tariff hike is expected to be visible over the next couple of quarters, since many of its subscribers are on long-duration plans. The industry continues to strive for even higher tariffs, aiming to raise ARPUs to Rs 300.

Bharti Airtel’s mobile services added 0.6 million post-paid subscribers and around 6.5 million 4G and 5G subscribers additions. Jio added 3.3 million subscribers (4G and 5G), while Vi lost 5.2 million subscribers. Since Q1 FY2025, (before the tariff hikes of July 2024), Airtel and Hexacom have seen a 16-18 per cent increase in ARPU, compared to Jio’s 12 per cent and Vi’s 11 per cent.

The sector’s mobile data traffic growth was up 3 per cent quarter on quarter and up 20 per cent year on year. Airtel’s data traffic was up 4 per cent quarter on quarter and 23 per cent year on year, and Jio’s was up 3 per cent quarter on quarter and 22 per cent year on year. Meanwhile, Vi saw a data traffic decline of 2 per cent quarter on quarter and 2 per cent year on year, and its data market share is down 1.85 per cent year on year to 8 per cent.

Bharti is expected to gain further data traffic share, as its 4G/5G subscribers increased to 270 million, while data penetration remains at 76 per cent of its 357 million total mobile subscribers. Overall, 5G subscribers of Jio and Bharti reached 170 million and 120 million respectively, contributing 35-44 per cent of the total data subscriptions.

As the capex drops and data usage rises, along with further calibrated tariff hikes, Bharti and Jio are expected to generate higher free cash flow. Jio is also reportedly considering a potential public listing after being spun off from its parent company, Reliance Industries Limited. Vi continues to face significant concerns on the debt front, with Vi management stating that discussions are ongoing with banks to raise Rs 250 billion ($3 billion) in debt. Banks are seeking legal clarity on developments that could potentially lead to a substantial reduction in adjusted gross revenue dues.

5G penetration remains at only 35 per cent of subscriptions, primarily due to the lack of compelling 5G use cases and costly smartphones. Jio and Bharti continue to offer unlimited 5G data offerings, limiting 5G monetisation. Jio reports that its 5G network carries over 40 per cent of its wireless data traffic. Both Jio and Bharti are agvigorously working to monetise 5G through aggressive roll-outs of fixed wireless access (FWA) and private 5G network services, and Vi is likely to follow suit. Jio’s 5G FWA services are available pan-India and it aims to connect 100 million homes via fibre-to-the-home/FWA at record speed (there were 17 million subscribers at end-Q3 FY2025). Bharti has also started the roll-out of its 5G FWA across 200 cities.

Most sector analysts believe that telecom may have turned the corner in terms of long-term financial sustainability. Competitive intensity has moderated, allowing for some pricing power. Data services are growing at a 20 per cent rate, and the shift to 5G is accelerating as handset affordability improves and penetration increases. Calibrated tariff hikes (and future differentiation of 5G services by tariffs) are likely to be absorbed by the market, as evidenced over the past 12 months. This will enable a steady rise in ARPU going forward. Meanwhile, Indus Towers is seeing robust co-location demand with associated rental income, and Vi’s ongoing network roll-out is set to fuel further growth through setting up of new towers.

Vi’s financials remain a cause for concern; however, industry and policy consensus indicates that it will receive the support required to survive. Vi could see significant ARPU growth as it strengthens its 4G network and rolls out 5G, given its relatively low post-paid user base and limited mobile broadband penetration. If it can stabilise its market share losses going forward, it has the potential to re-emerge as a serious competitor.

Telecom service providers typically operate on a business model, which involves a period of high initial capex and overheads. Once the capex moderates and overheads flatten, profits can rise very quickly.  Revenue is now growing at high-teen rates for the Bharti Group and Reliance Jio. Both are well placed to cash in on almost-complete network roll-outs (5G and fibre) and are expected to generate high free cash flow as new 5G use cases emerge.

Devangshu Dutta