Internet Penetration In Rural Areas Likely To Grow By 4-5 Per Cent By FY26: CRISIL

Rural internet user base stayed resilient over the past year even in the face of tariff hikes introduced in mid-2024, reflecting high dependence of rural users on mobile internet.

Surge in per-user data usage in the rural areas is also being supported by network expansion, competitively priced plans and better affordability of smartphones.

Source : Unsplash

Increasing internet adoption and data consumption by rural subscribers are emerging as structural drivers for growth in average revenue per user (ARPU) of Indian telecom companies and to capitalise on the trend, telcos are strengthening rural connectivity, which should help expand their data subscriber base and returns, according to a report released on Tuesday.

Over the four calendar years ended December 31, 2024, internet penetration in rural India surged from 59 per cent to 78 per cent, outpacing urban areas, which grew from 77 per cent to 90 per cent, according to a Crisil Ratings report.

Internet penetration in rural areas is expected to further increase by 4-5 per cent by the end of fiscal 2026, supported by continued adoption of online communication, digital payments as well as increasing usage of social media, content streaming services and e-commerce.

Despite being more price sensitive, rural internet user base stayed resilient over the past year even in the face of tariff hikes introduced in mid-2024, reflecting high dependence of rural users on mobile internet.

Surge in per-user data usage in the rural areas is also being supported by network expansion, competitively priced plans and better affordability of smartphones. Much of this momentum is visible in circles B and C, which form nearly 70 per cent of the rural subscriber base in India.

Data consumption in these circles has clocked a compound annual growth rate of 19–22 per cent over the past four years -- outpacing the 17-19 per cent growth seen in metros -- highlighting the penetration of mobile data services and steady demand for it. This growth trend should sustain with the expansion of the 4G networks in the underpenetrated areas and will drive up the ARPU, going forward.

Anand Kulkarni, director of Crisil Ratings, said, “The industry ARPU is expected to rise by Rs 20-25 to reach Rs 225-230 by the end of this fiscal, assuming tariffs remain stable. Around 55-60 per cent of the incremental ARPU is expected to come from rural subscribers".

In keeping with this trend, telcos have also been aligning their offerings with varied data-centric plans and investing in spectrum acquisition and tower densification in rural areas. In the auction held in June 2024, telcos acquired bulk of the spectrum in circles B and C. Further, a sizable portion of the planned capex of Rs 8,000-9,000 crore to be undertaken by independent telecom tower companies in fiscal 2026 will be directed towards rural areas.

Crisil Ratings team leader Mohini Chatterjee said, “The targeted network and spectrum investments in rural areas, along with growth in ARPU, will help increase telcos’ return on capital employed to around 12 per cent in fiscal 2026 from 10 per cent in fiscal 2025. With 75 per cent of the cost being fixed in nature, even a modest hike in ARPU can materially benefit earnings.”

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)