The impact of higher fuel costs due to the conflict in West Asia, along with a delay in tariff increases that’s limiting revenue growth, is expected to weigh on the financials of India’s telecom companies in the near term, according to analysts. Mint analyzes how the mismatch between high costs and limited scope for charging customers is likely to put pressure on telecom operators.
Why has the West Asia conflict been a concern for telecom companies?
Telecom operators rely on diesel-powered generators to ensure uninterrupted power supply to telecom towers, which form the backbone of mobile networks. With the blockade of the, a key conduit for global oil supplies, constraints in procuring diesel, along with rising fuel prices, are expected to increase energy costs for telcos.
Analysts said broader inflationary pressures due to the war could reduce chances for operators to increase tariffs of recharge plans.
An increase in the prices of network equipment and chips, along with longer delivery times, which vendors such as Nokia have already started flagging, is expected to affect telecom operators. and continuing high interest rates have made importing network equipment and funding capital expenditure more expensive.
How important are energy costs for telcos?
According to brokerage house IIFL Capital, energy costs account for 10% of India mobile revenue and 6% of India revenue for Bharti Airtel. For Vodafone Idea, it is 12% of revenue.
“While telcos do not split out energy costs between electricity, solar and diesel costs, we estimate that diesel accounts for 25-35% of energy costs,” analysts at the brokerage house said in a note dated 6 April. Going by the December quarter earnings, Airtel’s energy costs would be about ₹2,865 crore, of which diesel would have cost over ₹700 crore.
The brokerage estimates a 20% increase in diesel costs, which could cause a 30-60 basis point (bps) hit on margins. get diesel at retail prices. They do not use industrial diesel, for which oil companies have already implemented a 25% price hike, according to the brokerage house.
Why does a delay in tariff hikes matter?
Telecom operators need to increase tariffs to improve their return on capital employed (RoCE). Currently, telcos are trying to monetize their capex on rolling out 5G networks. Delays in increasing tariffs impact operators’ future earnings forecasts.
“We have assumed a tariff hike of 16-20% on data subscribers in 1QF27. If the tariff hike is delayed by 6 months (to 3QF27), we see potential cuts of 5%/1% to our FY27/28 EBITDal forecasts for the India business (of Bharti Airtel),” brokerage house Morgan Stanley said in a note dated 5 April. EBITDAal reflects telecom companies’ operating profit after accounting for lease costs such as tower rentals.
The last major industry-wide tariff hike took place in July 2024.
How are telcos managing in the absence of tariff increases?
Telcos are increasing their average revenue per user (Arpu) entirely through premiumization. This means subscribers upgrading from older 2G networks to 4G and 5G, shifting from cheaper prepaid plans to more expensive postpaid plans, and consuming higher amounts of data. As of December end, Bharti Airtel led with an Arpu of ₹259 per month, followed by Reliance Jio at ₹213.7 and Vodafone Idea at ₹172.
Arpu, a key metric, is the average revenue a telecom company earns from each user per month.
Analysts anticipate the next major headline tariff hike of 15-20% in the second half of calendar year 2026. They, however, expect tariff increases to deliver lower gains than expected earlier because inflation pressures could limit the ability of consumers to absorb higher prices.
How is the March quarter seen for telcos?
The quarter is expected to be flat in terms of growth compared to the previous quarter, largely due to two fewer days in February. On a year-on-year basis, growth is expected to be steady, driven by stable subscriber growth and premiumization, brokerage house ICICI Securities said in a note dated 5 April.
Investors will look for commentary from the companies on any war-related impact, the next cycle of tariff hikes and dividend. Besides, investors are awaiting clarity on the initial public offering from Jio Platforms.