The Indian telecom sector is poised to achieve a significant milestone in the coming years. Industry experts predict that quarterly revenues will surpass ₹1 lakh crore within two to three years.
This growth is being driven by increased data consumption, higher tariffs, and the continued transition of users from 2G to 4G and 5G networks.
The sector has seen a remarkable recovery from its lowest point in January-March 2018, when quarterly revenue fell to ₹35,000 crore amidst intense price wars. Since then, revenue has more than doubled, reaching over ₹75,000 crore per quarter.
This marks substantial progress from the ₹53,000 crore recorded in April-June 2016, prior to the entry of Reliance Jio, when the market was crowded with 9-10 private players per circle.
The rapid adoption of data services has transformed the telecom landscape. Previously reliant on voice and SMS for revenue, telecom operators have shifted their business models to focus on data-centric offerings. This shift has unlocked new revenue potential for the industry.
Smartphone penetration has been a major factor in this growth. According to Balaji Subramanian, Vice President at IIFL Securities, data usage has surged even as subscriber additions have remained modest.
He noted that tariff hikes implemented between 2019 and 2024 have contributed to steady increases in average revenue per user (ARPU). Subramanian expects the impact of the June 2024 tariff hikes to become fully evident in the next two quarters, further boosting revenues.
The sector’s ARPU, which had dropped from ₹99 to ₹79 following Jio’s market entry in 2016, has since rebounded. By the quarter ending September 2024, ARPU reached ₹179, reflecting the financial recovery of an industry once strained by intense competition.
Subscriber numbers have remained relatively stable over this period, but there has been a noticeable shift from wireline to wireless services.
Despite this positive outlook, there are challenges on the horizon. Satellite communication services, including those from companies like Elon Musk’s Starlink and Amazon, may disrupt the market.
While these services are not expected to replace terrestrial networks entirely, their potential impact cannot be ignored.
Experts also highlight the financial strain on the sector due to mounting debt. India Ratings (Ind-Ra) has raised concerns about two key issues: the government’s stance on converting Vodafone Idea’s statutory liabilities into equity and the significant investments in state-run operators BSNL and MTNL.
According to Prashant Tarwadi, Director at Ind-Ra, these decisions could influence competition, market share dynamics, ARPU trends, and the overall recovery of the sector’s return ratios.
Home broadband is emerging as a promising growth area for telecom companies. With low penetration levels in India, this segment has the potential to generate annual revenues of $6-7 billion.
However, experts caution that short-term price challenges, particularly with Vodafone Idea’s entry into the 5G space, could create temporary instability.
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