Naveen Vaidyanathan, Director, and Rounak Agarwal, Team Leader, CRISIL Ratings Limited

India – second only to China in terms of mobile subscription – has rolled out 5G services in 500-plus cities within just six months of the spectrum auction, even faster than most of the developed countries. But the current pace of launch clearly indicates the strong focus of telecom companies on the speedy migration of 4G subscribers to 5G technology.

Even then, only about a third of wireless data users in India, or approximately 300 million subscribers, would have swit­ched to 5G by March 2025, against an estimated 20 million-25 million as of March 2023. The balance two-thirds will continue to use 4G. This is because mass adoption will gather pace only when retail use cases get unlock­ed. While a plethora of 5G-led use cases have already been identified, such as smart classrooms, precision farming and intelligent transport systems, the adoption of 5G hi­nges on significant improvement in network infrastructure, which will happen only gradually over the next few years. Pene­tration of 5G devices among users will also be crucial. In contrast, the adoption of 4G services was swifter, with approximately 60 per cent data users migrating within two years of launch, helped by better speeds (compared with 3G) at significantly cheaper tariffs. To recall, intense price competition during the launch of mass 4G had led to the average revenue per user (ARPU) fa­lling to approximately Rs 100 from ar­ound Rs 190 during fiscal years 2017-19. How­­ever, the massive spurt in data consu­m­ption, especially during the pandemic, has led to the average data consumption per su­b­s­criber per month quadrupling to aro­u­nd 20 GB in the past five fiscal years. 5G ser­vices will provide a fillip to data consu­m­ption as users uptrade to bigger data packs for better speeds. Thus, the average da­ta usage per subscriber per month is ex­pe­cted to reach approximately 24 GB in fiscal year 2024 itself, and keep rising even after.

This is because telcos are now offering free unlimited 5G data along with access to more over-the-top (OTT) content for se­lect plans to drive 5G adoption. On top of that, there is huge traction for online gaming as well. All these put together will continue to data consumption in the country, thereby aiding ARPUs.

We expect overall ARPUs to rise to ar­ound Rs 210 in fiscal year 2024 from arou­nd Rs 175 estimated for fiscal year 2023, driven by uptrading to bigger data plans as de­mand for data continues to surge. Re­vision in base prepaid tariffs – largely meant for non-internet users – will also aid ARPUs to some extent, as about a fourth of su­bscribers in India still do not use the internet. Besides ARPUs, revenue is driven by subscription base. The country’s overall su­b­scription base will remain flattish, as SIM consolidation in urban areas will be largely offset by a marginal increase in rural areas. For context, rural areas accounted for arou­nd 45 per cent of the 1,143 million su­b­s­criptions in India as of January 31, 2023. However, rural teledensity is only 57.4 per cent, compared to 128.7 per cent for urban areas. This means there is only one SIM for every two people in rural India, indicating significant potential there. The rise in rural subscriptions will, however, be gradual as device affordability remains a challenge for the economically weaker sections.

Net, net, the sector’s revenue is expected to grow 18-20 per cent year on year to reach around Rs 2.9 trillion in fiscal year 2024. The medium-term upside potential, however, is huge as telcos are not monetising 5G yet and are offering technology-neutral pricing to drive adoption of 5G services. As more 5G retail use cases get unlocked, telcos will strive to drive returns, and revision in tariffs would not be a surprise.