An inevitable price recovery expected from the second-half of financial year 2020 would change the fortunes of telecom companies as their Average Revenue Per User (ARPUs) would rebound. ARPU, a metric used to gauge the financial strength of an operator, was pushed to a decadal low after Reliance Jio Infocomm launched its services.

RJio’s entry in FY17 had unleashed one of the most “brutal price” wars in India’s telecom market. Consequently, industry ARPU plunged about 38 per cent, leading to the total industry size shrinking to ₹1.4 trillion from ₹1.8 trillion, said a report by Edelweiss.

According to the brokerage firm, now there is light at the end of the tunnel as mobile broadband penetration has crossed 50 per cent, and monetising existing customer base is more lucrative than chasing incremental market share. Further, price hikes are imminent as RJio approaches its 400 million subscriber goalpost and telecom operators’ massive non-core asset monetisation drive makes it imperative for investors to repose confidence in the telecom industry’s long-term health.

A price recovery would be triggered the second half of FY20, propelling industry ARPU to the pre-RJio level of ₹156 by FY22-end (₹98 in Q3FY19), it said, adding that telecom operators are estimated to raise prices in H2FY20.

Reversing a trend

The Indian telecom industry will reverse a two-year declining trend with a 7 per cent revenue growth in FY2020. The turnaround will ride on an increase in ARPU by 11 per cent, though the overall subscriber base is expected to shrink by 4 per cent, Crisil said in a note.

A protracted tariff war has pushed ARPU to a decadal low. This is despite the consolidation in the industry that has reduced the number of major players to three, in line with global standards. In the past two years, the industry has lost about 20 per cent of potential revenue, tantamount to over ₹40,000 crore.

Crisil, however, believes telecom tariffs have bottomed out, as reflected in the stable pricing and the fact that the top three telecom companies now have almost equal revenue market share.

Mobile revenues to rise

Research firm UBS estimates aggregate sector mobile revenues to grow 10.4 per cent and 11 per cent in FY20 and FY21, after declining 20.2 per cent and 6.2 per cent in FY18 and FY19. The prricing environment has been stable in recent months.

“Meanwhile, the launch of min-ARPU plans could be 3-4 per cent revenue-accretive, even assuming a loss of 20-25 per cent of low-end feature phone subs (subscribers), while the migration of subs from feature phone to smartphones continues to drive modest ARPU upgrades,” it said, adding that the current tariff levels would persist for another six months, with likely modest tariff hikes from Q1-Q2 of FY20.