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). 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 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 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% 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.”
That said, affordability of data plans will remain essential for the growth in rural data subscribers. Crisil