India’s rural subscribers to primarily drive ARPU growth in FY26: Crisil

The telecom industry’s average revenue per user (ARPU) is expected to rise by ₹25-30 to reach ₹225-230 by the end of this fiscal year (FY26), with incremental growth led by rural subscribers and uptrading of plans, according to the latest Crisil Ratings report released on Tuesday.

With that said, the affordability of data plans will remain essential for the growth in rural data subscribers, according to the brokerage.

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

‘Relatively lower internet penetration in rural regions will drive migration of subscribers to data plans. Additionally, uptrading of plans due to higher data consumption will also drive ARPU growth,’ Kulkarni further said.

Crisil noted that telecom carriers are strengthening rural connectivity, which may help expand their data subscriber base and returns.

Over the four calendar years ending December 31, 2024, the internet penetration in rural India has surged from 59% to 78%, outpacing urban areas, where this metric grew from 77% to 90%.

The ratings agency expects the internet penetration in rural areas to increase by another 4-5% by the end of the fiscal year 2026, supported by the continued adoption of internet-driven services such as online communications, digital payments, and social media, among others.

‘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,’ Crisil said.

India’s top telcos Reliance Jio, Bharti Airtel, and Vodafone Idea (Vi) had increased their headline tariffs by 20-25% in July last year to improve their ARPU and shore up money to invest sustainably in building out and expanding their respective fifth-generation (5G) networks.

Recently, US-headquartered global brokerage Bernstein said in a separate report that it expects the tariff hike to continue in the medium term to reach ₹300 by FY27. ‘We anticipate a tariff hike in November/December 2025, in line with ongoing tariff repair efforts across the industry,’ it had said.

In the October-December 2024 quarter, Airtel’s ARPU grew by 5.2% sequentially to ₹245, supported by the flow-through of tariff hikes in early 2024, feature phone to smartphone upgrades, prepaid to postpaid upgrades, data monetisation and growth of international roaming, while 5G coverage expansion continues as planned. By contrast, Jio’s ARPU was up by 4.2% sequentially to ₹203, followed by Vi (₹163).

Meanwhile, Crisil said that the surge in per-user data usage in the rural areas is also being supported by network expansion, competitively priced data plans, and affordable smartphones.

It added that the trend is significantly visible in the B- & C-circles, while account for nearly 70% of the rural subscriber base in India, and where data consumption has grown at a compound annual growth rate (CAGR) of 19-24% over the last four years, outpacing the 17–19% growth seen in metro.

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