Lookback: The Three-Player Equilibrium, How Indian Telecom Found Its Floor

By Aditya Sharma, Founding Editor, BazaarBaazi
January 14, 2025

Nearly eighteen months ago, when we last surveyed the Indian telecom landscape, the sector was emerging from a brutal price war that had winnowed the field from a dozen operators to just three private players plus the state-owned BSNL. The period from July 24, 2023, to January 14, 2025, will be remembered as the moment the industry finally transitioned from survival mode to a sustainable growth trajectory. The “three-player economics” thesis,the belief that a consolidated market with Reliance Jio, Bharti Airtel, and Vodafone Idea could support pricing power, rising ARPUs, and healthy returns on capital,moved from theoretical debate to observable reality.

The sector index, as tracked by the Nifty Telecom index, delivered a cumulative return of approximately 62% over the period, outperforming the broader Nifty 50’s 35% gain. But the headline number concealed a far more nuanced story of leadership rotation, regulatory crosswinds, and a stark divergence between the two strong operators and the struggling third player.

The Cycle Anatomy: What Triggered, What Sustained, What Reversed

The Trigger: Tariff Hikes and the Spectrum Auction Reset

The cycle’s ignition point can be traced to the November 2023 quarter, when both Bharti Airtel and Reliance Jio announced tariff increases of 15,25% on select prepaid plans. These were the first meaningful price hikes since the 2019,2020 period, and they signalled a collective recognition that the industry could no longer sustain sub-Rs 100 ARPUs. The trigger was not a single event but a confluence: the government’s decision to defer spectrum auction payments for Vodafone Idea (Vi) and the Supreme Court’s dismissal of adjusted gross revenue (AGR) appeals had removed the existential threat for Vi, stabilising the competitive dynamic.

The market’s immediate reaction was euphoric. The Nifty Telecom index surged 12% in the two weeks following the tariff announcements, with Bharti Airtel hitting a new 52-week high. Investors priced in a structural improvement in average revenue per user (ARPU), which had languished near Rs 130,140 for the industry. The consensus view was that the three-player oligopoly would now behave rationally, akin to telecom markets in other emerging economies.

The Sustain Phase: ARPU Expansion and Subscriber Consolidation

From January 2024 through October 2024, the sector enjoyed a sustained rally driven by three pillars. First, ARPU growth materialised. Bharti Airtel reported ARPU of Rs 208 in the March 2024 quarter, up from Rs 193 a year earlier. Reliance Jio’s ARPU rose to Rs 181.7 from Rs 167.6 over the same period. Vodafone Idea, despite its financial distress, managed to nudge ARPU to Rs 146 from Rs 135, aided by the tariff hikes and a shift of low-value subscribers to higher plans.

Second, subscriber consolidation continued. The industry’s total subscriber base shrank by about 30 million over the period, as inactive and dual-SIM users were weeded out. This was a healthy trend: the remaining subscribers were higher-quality, data-hungry users who churned less and spent more. Bharti Airtel gained 12 million net subscribers, while Jio added 8 million. Vi lost 15 million, but the pace of losses decelerated sharply after the government’s equity conversion and debt restructuring in early 2024.

Third, capital expenditure discipline improved. Both Bharti and Jio signalled that their peak 5G rollout capex was behind them. Bharti guided for capex of Rs 35,000,37,000 crore for FY25, down from Rs 42,000 crore in FY24. Jio’s capex also moderated as it completed its pan-India 5G coverage. This freed up free cash flow, which was directed towards debt reduction and dividend payments.

The Reversal: Regulatory Overhang and Vi’s Struggles

The rally hit a wall in November 2024, when the sector index corrected 8% from its peak. The reversal had two catalysts. First, the Telecom Regulatory Authority of India (TRAI) released a consultation paper on spectrum pricing and auction design, raising the spectre of higher reserve prices in the upcoming 2025 auction. This reintroduced uncertainty about future capex requirements and potential bidding wars. Second, Vodafone Idea’s September 2024 quarter results disappointed. The company reported a net loss of Rs 6,432 crore, wider than expected, and its subscriber base slipped further. The market began to question whether Vi would ever achieve positive free cash flow, even with tariff hikes.

The reversal was not a full-blown collapse. The index had given up only about half its gains from the peak by mid-January 2025. But the momentum had clearly stalled, and the sector was trading at 10,12 times forward EV/EBITDA, a premium to its historical average but no longer pricing in aggressive ARPU growth.

Leadership Rotation Within the Sector

The period saw a clear leadership rotation between the three stocks, reflecting their divergent financial trajectories.

Bharti Airtel was the undisputed leader. The stock rose from around Rs 860 in July 2023 to Rs 1,680 by October 2024, a near-double. Its relative strength versus the Nifty 50 was consistently positive. The market rewarded Bharti for its strong execution in mobile, its expanding fibre and enterprise business, and its African operations. By the end of the period, Bharti’s market capitalisation exceeded Rs 9.5 lakh crore, making it the fourth-largest listed company in India by market cap.

Reliance Jio, listed as part of Reliance Industries, was a steadier but less dramatic performer. RIL’s telecom arm contributed to the parent’s consolidated earnings, but the stock was influenced by other factors,retail, oil-to-chemicals, and new energy. Jio’s standalone valuation, if one imputed it from RIL’s sum-of-the-parts, was roughly flat over the period, as the market discounted the moderation in subscriber growth and the lack of further tariff hikes after the initial round.

Vodafone Idea was the wild card. The stock swung violently. It rallied 140% from July 2023 to February 2024, driven by the government’s equity conversion and hopes of a turnaround. But from March 2024 onwards, it gave back most of those gains, ending the period at Rs 8.50, only 20% above its July 2023 level. The stock’s relative strength turned sharply negative after the September 2024 earnings. Vi remained a deep value play, but the market priced in a high probability of further dilution or eventual consolidation.

Cross-Sector Comparison: Telecom Versus the Broader Market

To understand the sector’s relative performance, we compared the Nifty Telecom index against other major sectoral indices over the same period.

Sector Index	Return (Jul 2023, Jan 2025)	Key Driver
Nifty Telecom	+62%	Tariff hikes, consolidation
Nifty IT	+45%	AI demand, US recovery
Nifty Pharma	+38%	USFDA approvals, domestic growth
Nifty Bank	+32%	Credit growth, NIM stability
Nifty Auto	+28%	Rural recovery, EV push
Nifty FMCG	+18%	Volume recovery, margin expansion

Telecom was the top-performing sector among the major indices. This outperformance was particularly striking in the first half of the period (July 2023 to March 2024), when telecom returned 38% versus the Nifty 50’s 18%. In the second half (April 2024 to January 2025), telecom’s relative edge narrowed as IT and pharma caught up.

The cross-sector comparison reinforced the thesis that telecom’s rerating was a structural play on pricing power, not a cyclical beta rally. Unlike banks or autos, which were sensitive to interest rates and economic cycles, telecom’s earnings were driven by a discrete event,the end of destructive competition.

Historical Analog: The 2016,2018 Consolidation Cycle

The current cycle bore a striking resemblance to the 2016,2018 period, when the Indian telecom sector consolidated from six players to three after Reliance Jio’s disruptive entry. In that earlier cycle, the surviving players,Bharti, Idea (which later merged with Vodafone), and Jio,saw their stocks rally after the dust settled. Bharti Airtel’s stock rose 55% from the trough in October 2016 to the peak in January 2018, before the AGR crisis and the pandemic derailed the recovery.

The key difference this time was the presence of a supportive government. In 2016,2018, the government was a passive observer. In 2023,2025, it actively intervened,converting Vi’s spectrum dues into equity, deferring auction payments, and refraining from aggressive spectrum pricing. This created a floor under the sector. The analog suggested that the cycle still had legs, provided Vi could stabilise and the government did not reintroduce regulatory headwinds.

Data Deep Dive: Earnings and Flows

The aggregate earnings of the top three players (Bharti Airtel, Reliance Jio, Vodafone Idea) over the last three quarters painted a clear picture of divergence.

Quarter	Bharti Airtel Revenue (Rs Cr)	Bharti Airtel EBITDA Margin	Jio Revenue (Rs Cr)	Jio EBITDA Margin	Vi Revenue (Rs Cr)	Vi EBITDA Margin
Mar 2024	37,912	51.2%	28,674	48.5%	10,573	38.1%
Jun 2024	38,508	51.8%	29,305	49.1%	10,442	37.6%
Sep 2024	39,125	52.3%	29,850	49.6%	10,210	36.9%

Bharti’s revenue grew 3.2% quarter-on-quarter on average, while Jio grew 2.1%. Vi’s revenue declined 1.7% per quarter, reflecting subscriber losses. EBITDA margins expanded for Bharti and Jio, but contracted for Vi. The market was pricing in a further widening of this gap.

Foreign institutional investors (FIIs) were net buyers of telecom stocks over the period, accumulating Rs 18,500 crore worth of shares, per NSDL data. Domestic institutional investors (DIIs) were net sellers, taking profits after the strong run. The bulk of FII buying was concentrated in Bharti Airtel, which saw its FII holding rise from 22.4% in July 2023 to 26.1% by January 2025. Vodafone Idea saw FII holdings decline from 11.2% to 7.5%, as foreign funds exited the distressed name.

Brokerage upgrades outpaced downgrades by a ratio of 3:1 over the period. Most upgrades targeted Bharti Airtel, with target prices revised upward by an average of 25%. Downgrades were concentrated on Vodafone Idea, as analysts cut their target prices by 40% after the September 2024 results.

Macro Context: Government Policy and Global Benchmarks

The macro environment was broadly supportive. The RBI held the repo rate steady at 6.50% through the period, which kept borrowing costs stable for telecom firms, which are capital-intensive. The government’s focus on digital infrastructure, including the BharatNet project and the production-linked incentive scheme for telecom equipment, provided a tailwind.

Globally, telecom stocks in developed markets,AT&T, Verizon, Deutsche Telekom,also rallied, driven by similar themes of consolidation and pricing power. The correlation between Indian telecom and global telecom stocks increased, suggesting that the sector was being re-rated as a defensive growth play rather than a domestic cyclical.

The only macro risk that loomed was the possibility of a tariff war if Vodafone Idea attempted to regain market share through aggressive pricing. But the company’s balance sheet constraints made that unlikely. The government’s implicit guarantee of Vi’s survival also reduced the incentive for predatory pricing by Bharti or Jio.

Charting the Journey

The weekly chart of the telecom sector index showed a clear uptrend from July 2023 to October 2024, with a pullback in November,December 2024. The 50-week moving average provided consistent support, and the relative strength index (RSI) remained above 50 for most of the period, indicating bullish momentum.

Weekly price action of the Nifty Telecom index from July 2023 to January 2025. The index formed a higher-high, higher-low structure until October 2024, before correcting into a consolidation zone. The 50-week SMA (blue line) acted as dynamic support.

The daily chart with a moving average stack revealed that the index traded above its 50-day and 200-day moving averages for the majority of the period. The crossover of the 50-day above the 200-day in August 2023 confirmed the start of the bull trend. The recent pullback brought the index back to test its 200-day moving average, a level that had held during the August 2024 correction.

Daily chart with 20, 50, and 200-day moving averages. The index broke below its 20-day SMA in November 2024 but found support at the 200-day SMA. The MA stack remained in a bullish alignment (20 > 50 > 200), though the gap was narrowing.

The 30-minute chart around the focus date of January 14, 2025, showed a tight range with low volatility, suggesting that the market was awaiting a catalyst,either the upcoming TRAI spectrum auction announcement or the December 2024 quarter earnings.

30-minute intraday chart for the Nifty Telecom index on January 14, 2025. The index oscillated within a 0.5% range, with declining volume. The lack of directional bias indicated indecision ahead of earnings season.

Verdict: Where the Cycle Stood at the End of the Period

At the close of January 14, 2025, the telecom sector stood at a crossroads. The three-player economics thesis had been validated by tariff hikes, ARPU expansion, and improved free cash flow at Bharti and Jio. Vodafone Idea remained the weak link, but the government had effectively backstopped its survival. The sector’s valuation had rerated from 7,8 times EV/EBITDA to 10,12 times, reflecting the structural improvement.

The key question was whether further upside required a second round of tariff hikes, which seemed unlikely before the general elections due in April,May 2025. The regulatory overhang from the TRAI consultation paper added a layer of uncertainty. Historical analogs suggested that the cycle could continue for another 12,18 months, but only if Vi stabilised and the government maintained a supportive stance.

On balance, the evidence pointed to a neutral stance with a slight bullish bias over a 12-month horizon. The sector had already priced in much of the good news, but the underlying earnings trajectory remained positive. The risk-reward was balanced, with the primary downside being regulatory missteps or a Vi-induced crisis.

Verdict: NEUTRAL
Horizon: 12 months

Disclaimer: This article is for informational purposes only and does not constitute investment advice. The author may hold positions in stocks discussed.