Telecom Tariff Surge Set To Propel ARPU To Rs 225 In FY26: Report

The agency anticipates that ARPU growth will occur gradually over the current fiscal year and the next as the tariff hikes take effect with the next recharge cycle in the predominantly prepaid market

As per the agency, this move will enhance the credit profiles of telcos due to increased profitability and reduced capital expenditure

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The one-after-the-other tariff increases by leading private operators will drive telecom companies' average revenue per user (ARPU) to exceed Rs 225 in FY26, reaching the highest level in a decade, according to a Crisil report released on Tuesday. 

As per the agency, this move will enhance the credit profiles of telcos due to increased profitability and reduced capital expenditure. The ARPU, a critical metric influencing financial health, is expected to rise by 25 per cent in FY26 compared to FY24. "The industry ARPU should dial up to a decadal high of Rs 225-230 by the end of next fiscal compared with Rs 182 last fiscal," Crisil’s deputy chief rating officer Manish Gupta said.

Following the formation of the new government after the general elections, the top three private sector telcos raised their tariff rates by as much as 20 per cent. 

Gupta highlighted that the introduction of 5G services has led to increased data usage, which will also bolster ARPUs. He noted that customers are upgrading their tariff plans due to higher data consumption from video streaming, social media, and gaming. 

The agency anticipates that ARPU growth will occur gradually over the current fiscal year and the next as the tariff hikes take effect with the next recharge cycle in the predominantly prepaid market.

The tariff increases are expected to enhance the industry's return on capital employed to 11 per cent by the end of FY26, up from 7.5 per cent in FY24. The agency noted that the industry has experienced a period of "suppression" in this metric over the past few years.

Capital expenditure intensity, measured as investments relative to revenue, is projected to decrease to 19 per cent in the upcoming fiscal year from 28 per cent in FY24. This reduction stems from most telcos having completed their 5G deployments, with remaining efforts focused on fiberising towers and establishing base receiver stations.

Additionally, expenditures on the new spectrum are expected to decline as significant purchases occurred in FY23, with renewal due only in FY30. 

As a result of moderated capital expenditures and improved profitability, overall debt for telcos is anticipated to decrease to Rs 5.6 lakh crore by FY26 from a peak of Rs 6.4 lakh crore in FY24, according to Anand Kulkarni, a director at Crisil. He noted that this reduction will likely lower the debt-to-operating profit ratio to less than 3 by FY26, down from 4.3 in FY24.

The agency also suggested that any potential further tariff hikes could positively impact its projections.