Increasing internet adoption and data consumption by rural subscribers are emerging as structural drivers for growth in
average revenue per user (ARPU) of Indian telecom companies (telcos) 1 . To capitalise on the trend, telcos are
strengthening rural connectivity, which should help expand their data subscriber base and returns.
Over the four calendar years ended December 31, 2024, internet penetration 2 in rural India surged from 59% to 78%,
outpacing urban areas, which grew from 77% to 90% (chart 1 in annexure). Internet penetration in rural areas is expected
to further increase by 4-5% by the end of fiscal 2026, supported by continued adoption of online communication, digital
payments as well as increasing usage of social media, content streaming services and e-commerce.
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.
Surge in per-user data usage in the rural areas is also being supported by network expansion, competitively priced plans
and better affordability of smartphones. Much of this momentum is visible in circles 3 B and C (chart 2 in annexure), which
form nearly 70% of the rural subscriber base in India. Data consumption in these circles has clocked a compound annual
growth rate of 19–22% 4 over the past four years — outpacing the 17–19% growth seen in metros — highlighting the
penetration of mobile data services and steady demand for it. This growth trend should sustain with the expansion of the
4G networks in the underpenetrated areas and will drive up the ARPU, going forward.
Says Anand Kulkarni, Director, Crisil Ratings, “The industry ARPU is expected to rise by Rs 20-25 to reach Rs
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. 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. Here as well, rural areas will play a key role as mobile phones serve as the primary gateway
vis-à-vis metro users, who have alternatives such as wi-fi.”
In keeping with this trend, telcos have also been aligning their offerings with varied data-centric plans and investing in
spectrum acquisition and tower densification in rural areas. In the auction held in June 2024, telcos acquired bulk of the
spectrum in circles B and C. Further, a sizable portion of the planned capex of Rs 8,000-9,000 crore to be undertaken by
independent telecom tower companies in fiscal 2026 will be directed towards rural areas.
Says Mohini Chatterjee, Team Leader, Crisil Ratings, “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.”