5G charges similar to 4G rates, an increase in ARPU is doubtful

Without compelling use cases to encourage the implementation of the quick wireless 5G networks in the nation, Indian telecom operators may be forced to price 5G tariffs similarly to 4G tariffs, brokerage firm Jefferies warned on Tuesday, drawing comparisons to South Korea and China, where attractive pricing has helped propel 5G penetration to 33-55%, respectively.

The brokerage issued a warning, however, noting that despite greater 5G adoption brought on by appealing pricing, none of the two markets—China nor South Korea—has noticed a significant improvement in the average revenue per user (ARPU).

In addition, although ARPU for 5G customers is greater, this is primarily because higher-Arpu subscribers are choosing 5G rather than current 4G users paying more for 5G. Given the global trend, Arpus in India are unlikely to increase only as a result of 5G, but rather will require an overall pricing increase for both 4G and 5G, the brokerage added.

According to data, Jio is currently in second place with an ARPU of Rs 183, followed by Vodafone Idea (Rs 128) and Airtel (Rs 183).

In an effort to increase their ARPU, the telecoms increased their prepaid charges by 20% to 25% in November 2021.

In order to create its 5G network, Jio is investing Rs 2 lakh crore, with an initial launch planned for key cities within the next two months, followed by a pan-India deployment by December 2023. While Vodafone Idea has not yet secured new loans to pay for 5G equipment, Airtel has also implied a similar timetable for the initial launch, aiming for pan-India 5G coverage by March 2024.

According to a source, the telecoms’ Capex expenditures could increase dramatically due to the ambitious rollout plans. Apart from the spectrum, Capex spending will be mostly focused on fiberization, which is still at a low 34% industry-wide and below 50% in even large cities like Delhi, it added.

As a result, it is anticipated that capex expenditures will continue to be high over the next two fiscal years (FY23 and FY24E). We estimate that Jio will have a capex to sales ratio of 35 to 46 percent and Bharti will have a capex to sales ratio of 21 to 26 percent. Higher capex with limited near-term ARPU potential would require tariff increases to maintain return ratios.

Jio and Airtel’s market share changes will also be influenced by 5G since historically, telcos with better balance sheets have had an advantage over their competitors.