Telecom Q3 review: Airtel triumphs in Arpu battle, but Jio could win the war

Vodafone Idea Ltd’s Arpu rose by ₹7 sequentially to ₹173 in the December quarter (Q3FY25) on a subscriber base of 200 million. However, it still makes losses. With nearly ₹2 trillion of debt, a significant portion being government dues, Vodafone Idea will spend most of its future cash flows on repaying this, even if its profitability improves. This leaves little on the table for shareholders. Plus, its equity base continues to expand with frequent dilution. There’s hope the company will get some relief from the government in the form of a debt waiver, but this appears unlikely as of now.

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Meanwhile, Bharti Airtel Ltd’s Arpu of ₹245 in Q3 was way ahead of Jio’s ₹203. The gap widened to ₹42 from ₹38 in Q2, with Bharti’s Q3 Arpu rising by ₹12 sequentially and Jio’s by ₹8. This difference in the Arpu increase can be explained by two factors – Bharti Airtel has a higher share of postpaid users than Jio and the former’s 2G users are paying more after migrating to 4G.

While the gap between Arpu of the two rivals could continue, future tariff hikes for both should be similar. Consequently, the absolute revenue gain could be higher for Jio because of its larger mobile subscriber base of about 460 million versus 360 million for Bharti Airtel at the end of Q3 (excluding Bharti Hexacom’s 28 million or so subscribers). Hence, there is greater scope for an upside surprise in Jio’s earnings.

Why Arpu is all-important

With 1.15 billion mobile connections in a country of 1.4 billion people, there’s limited potential for subscriber growth. This means Arpu is the only growth driver. Arpu is a function of data price per GB and data consumption. However, there may be challenges in growing data consumption as home broadband penetration increases. For instance, if a family has a Jio Airfiber or Airtel Xstream Airfiber connection at home that offers, say, 30 GB of data per day, it is likely to consume less mobile data.

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Another headwind to growing Arpu is a set of directions the Telecom Regulatory Authority of India (TRAI) issued in December. The regulator said all telecom operators must offer voice-and-SMS-only plans since many customers in rural areas and senior citizens do not consume data. Though this may appeal to a small section of mobile users, it could hurt companies’ Arpu as plans that come bundled with data have a higher revenue potential. All telecom operators launched voice-and-SMS-only plans in the current quarter, so the impact will be seen from Q4FY25 onward.

To be sure, the utility nature of the telecom business offers a safe haven when equity markets turn jittery. Airtel’s shares, for instance, have gained nearly 50% over the past year. Valuations still appear reasonable, with Airtel stock trading at an EV/Ebitda multiple of about 11x based on Bloomberg consensus estimates for FY26. Having said that, Tuesday’s stake sale of about 0.8% by the Mittal family, the company’s promoter, may cause a near-term hangover.

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