Is India's ailing telecom sector about to see a reversal of fortune? After a punishing tariff war sparked by the entry of Reliance Jio in late 2016, market revenues have fallen about 400 billion rupees ($5.76 billion) in the last two years, according to a recent report from market research firm Crisil. But things may be looking up.

After a round of consolidation and the disappearance of two big players -- Tata Teleservices and Reliance Communication -- the three key private companies are now on a similar footing, as far as market share is concerned. Their focus, accordingly, is on improving the average revenue per user (ARPU).

And ARPU has at last shown signs of improvement. Vodafone-Idea, the largest player, reported ARPU of INR89 ($1.28) in the December-ending quarter, up from INR88 ($1.26) in the previous three-month period. Airtel, the second largest service provider, saw its ARPU improve by 4%, to INR104 ($1.49).

Yet ARPU at Reliance Jio has continued to fall over this period, dropping from INR132 ($1.9) to INR130 ($1.87). For the first three months of this year, it registered a further decline, to INR126 ($1.81). Now that RJio serves more than 300 million customers, the question is whether its strategy will shift from acquisition to boosting expenditure by existing customers.

ARPU recovery: The trigger
Analysts attribute the recovery in ARPU to three major factors: Higher data usage; the introduction of minimum recharge plans; and less aggressive pricing as the gap in market share between the remaining players shrinks.

The latest report from the Telecom Regulatory Authority of India (TRAI) indicates that Vodafone Idea has a market share of 35%, Bharti Airtel has 29% and Reliance Jio has 25%.

In its own report, Crisil says: "The fact [is] that the top three telecom companies (telcos) now have almost equal revenue market share and any price-led aggression could impact all adversely."

A report from Edelweiss, an Indian financial services company, says: "Mobile broadband penetration crossing 50% has rendered monetizing of existing customer base more lucrative than chasing incremental market share; price hikes are imminent as Reliance Jio approaches its 400 million subscriber goalpost."

The other significant factor is higher data usage. On a per-subscriber basis, monthly data usage at Bharti Airtel has almost doubled in a year, from 5.3MB in December 2017 to 10.5MB in December 2018. At Vodafone-Idea, it has risen from 5.1MB in the June-ending quarter to 6.3MB in the December-ending period.

Higher data consumption is being driven by content packaging. Airtel is providing free access to Amazon Prime and Netflix for its subscribers. Vodafone Idea, similarly, offers free accesss to Zee5, another video-streaming service.

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In search of higher ARPU, most telecom operators have started weeding out customers who are not contributing to revenues in any meaningful way. They have launched minimum ARPU plans so that low-spending customers are encouraged to quit. While overall subscriber numbers may fall, the hope is that only profitable customers will remain.

After a disruptive two years that saw a sharp drop in data tariffs, telcos have realized they must focus more on improving profitability. As the market matures, the likelihood of sweeping price rises will grow.

— Gagandeep Kaur, contributing editor, special to Light Reading