Jio, Airtel’s 5G rates increase: Annual spending by consumers to rise by Rs 47,500 crore

Annual consumer expenditure on telecommunications services, including taxes, is expected to jump by approximately Rs 47,500 crore each year due to significant tariff increases implemented by India’s major telecommunications providers and higher rates for consumers adopting 5G services, as The Economic Times (ET) reported.

In a strategic push to capitalize on 5G, Reliance Jio and Bharti Airtel have notably enhanced the cost for consumers seeking advanced next-generation mobile broadband services. According to sources cited by ET, Jio customers are now looking at a 46 per cent rise in the minimum fee for 5G access. In contrast, Airtel customers are facing an even more substantial increase of 71 per cent.

The two telecom behemoths have adjusted their introductory price points for 5G service uptake. The starting price for Jio’s unlimited 5G data plan is now Rs 349 for a 2GB/day package, a significant jump from the earlier Rs 239 for a 1.5 GB/day option. On the other hand, Airtel has shifted to a Rs 409 plan, offering 2.5GB/day, moving away from the previous Rs 239 plan for 1.5 GB/day.

Market analysts believe these price adjustments will significantly enhance Jio and Airtel’s Average Revenue Per User (ARPU), expecting an uplift of 15-17 per cent. According to Citi Research, following the latest pricing changes, Airtel’s ARPU could increase to Rs 235/270/305 by FY25/26/27, up from Rs 209 in Q4FY24.

Similarly, Goldman Sachs suggests that Jio’s ARPU might see a 17 per cent rise due to the tariff alterations. Bharti Airtel recently initiated price hikes ranging between 11 per cent to 21 per cent across its prepaid and postpaid offerings, closely followed by Jio, which adjusted its tariffs by 12 per cent to 25 per cent. Vodafone Idea (Vi) also engaged in the tariff hike trend, increasing its rates by 10 per cent to 23 per cent, which is anticipated to boost the company’s ARPU by 12-15 per cent, despite Vi not offering 5G services.

Kotak Institutional Equities remarked in a research note that “the annual customer spending on telecom services could see a potential increase of Rs 47,500 crore following the tariff hikes, especially with Jio’s new unlimited 5G data cap at 2GB/day and above, compared to the earlier Rs 239 for 1.5GB/day and above plans.”

Analysts also forecast that the assertive pricing models adopted by Jio and Airtel will nudge heavy data users towards higher-tier plans, thus facilitating the long-awaited 5G services monetization. Although differential pricing for 5G has not been widely introduced, the push for upgrades through enhanced data allocations is currently spearheading monetization strategies.

Goldman Sachs estimates that for every 10 million Jio subscribers moving from the old Rs 239 plan to the newer Rs 349 plan, it could add approximately Rs 400 crore annually to the company’s EBITDA. By March 2024, Jio’s 5G subscribers numbered 108 million. Recent comments from Bharti Airtel’s Gopal Vittal and Vi’s Akshaya Moondra highlight the necessity for India’s telecom pricing model to follow global standards, where charges are based on data usage levels rather than a flat rate.

According to CLSA analysts, the new tariffs by Bharti and Jio are poised to drive up spending, leading to significant ARPU growth, although there remains a risk of down-trading and subscriber loss. Yet, the recent tariff changes are not expected to cause a significant SIM consolidation, analysts opine, as much of this consolidation has already taken place, and customer loyalty to data services is still robust.

Nomura Research underscores the competitive solid landscape of India’s telecom sector with three primary players, forecasting an improvement in free cash flow generation and return ratios as companies concentrate on value creation and investment monetization.

Looking forward, Goldman Sachs predicts a 15-20 per cent compound annual revenue growth rate (CAGR) for both Jio and Airtel in the next three years, with an EBITDA growth of 25-30 per cent, presuming further tariff adjustments.

BNP forecasts that Jio will see more significant benefits from its tariff strategy than Airtel, projecting 18 percent and 17 percent revenue growth, respectively, for FY25.