A new report from brokerage firm Ambit outlines a resilient future for India's telecom sector, projecting significant tariff increases starting in late 2026. Ambit expects an initial 15 percent tariff hike in December 2026, followed by a 12 percent rise every two years over the subsequent decade. This assessment follows the firm's recent digital infrastructure conference, which covered satellite communications, tariffs, emerging radio technologies, and data centers.
Telecom Tariff Outlook and Industry Dynamics
Ambit's forecast for future Indian telecom tariffs is closely tied to several critical factors within the industry. Vodafone Idea, for instance, is projected to need its average revenue per user (ARPU) to surpass Rs 300 by fiscal year 2030, a substantial increase from its current Rs 177. Simultaneously, Reliance Industries aims to deliver a dollar internal rate of return exceeding 10 percent to Jio Platforms investors. The industry as a whole is expected to achieve a 10 percent pre-tax return on capital employed by FY26, which is still below its cost of capital, indicating a need for improved financial health.
The brokerage firm also noted that the industry's valuations imply a 2-4 percent free-cash-flow yield for Airtel and Jio in FY27, which is significantly lower than the global average of 10 percent. Ambit forecasts a compound annual growth rate of 16 percent and 15 percent for Airtel and Jio, respectively, between FY26 and FY29. Operating leverage is expected to help support conservative balance sheets, dividends, and institutional inflows, while the fates of Vodafone Idea and Indus Towers remain linked to government actions aimed at preserving three private operators.
Datacentre Investments and Risks
Both Bharti Airtel and Jio have made strategic investments in co-location datacenters through specialized entities, leveraging low-cost third-party capital. Ambit highlights that securing essential resources like power and water poses a greater risk for these operations than customer acquisition. Payback periods for these investments have lengthened considerably, rising from 4-4.5 years pre-COVID to 11 years currently. Upcoming submarine cable landing stations in locations such as Dholera, Digha, Puducherry, and Vizag could help mitigate some of these costs. For tower companies, power and water linkages, rather than utilization rates, represent the primary risks.
Regulatory Environment and Sector Picks
The Telecom Regulatory Authority of India (TRAI) holds the power to regulate tariffs, interconnection, and service quality. However, TRAI has historically adopted a forbearance approach, allowing market forces to largely determine mobile tariffs. Experts suggest the industry is balancing consumer and investor interests, aiming to limit risks to monetization linked to increasing data usage. While satellite communications present an emerging investor risk, regulatory safeguards and national sovereignty concerns are expected to favor traditional telcos.
Ambit's Top Picks and Target Prices
- Bharti Airtel Ltd: 'Buy' rating, Target Price: Rs 2,732. (Top sector pick)
- Indus Towers Ltd: 'Buy' rating, Target Price: Rs 532.
- Vodafone Idea Ltd: 'Buy' rating, Target Price: Rs 18.7.
- Bharti Hexacom Ltd: 'Buy' rating, Target Price: Rs 2,130.
Ambit's positive outlook assumes continued pricing discipline post-Jio's listing and ongoing government support for the presence of three private operators in the market.