Morgan Stanley predicts 16-20% telecom tariff jump in Q1 FY27

Telecom companies are expected to increase prices for 4G and 5G plans by 16-20% in the first quarter of fiscal year 2027 (April-June 2026), according to a new report from Morgan Stanley. This projection is more aggressive than their previous forecast of a 15% increase later in the year.

Analysts at Morgan Stanley stated in their December 15 report that they anticipate tariff increases of 16-20% across both prepaid and postpaid 4G/5G plans in 2026. They believe recent strategies employed by telecom providers, such as eliminating budget-friendly plans and bundling streaming services exclusively with premium packages, indicate preparations for higher prices.

This price hike would be the fourth major one in the telecom sector in the last eight years. The industry previously implemented price increases of 30% in 2019, 20% in 2021, and 15% in 2024. Morgan Stanley notes that in each instance, stronger players like Airtel have captured larger revenue gains, while weaker competitors have struggled to keep pace.

The report also suggests that Airtel will steadily increase its revenue share in the industry, growing from 36% in early 2024 to over 40% by 2028. Conversely, Vodafone Idea's share is expected to decline from 24% to 18% during the same period. In terms of subscribers, Vi's market position is projected to decrease from 29% to 22.5% by 2028, while Airtel is expected to maintain a stable share of around 32%.

Morgan Stanley forecasts that Airtel's average revenue per user (ARPU) in India will rise from Rs. 260 in FY26 to Rs. 299 in FY27 and Rs. 320 in FY28. Analysts predict that ARPU will continue to grow, reaching Rs. 370-390 by FY32, driven by improved data pricing (as India currently has lower prices per GB compared to Southeast Asian countries), an increase in postpaid subscribers, and the adoption of roaming packages as travel increases.

The timing of these tariff increases is expected to benefit Airtel and Jio, as their 5G networks are largely complete. Capital spending, which previously peaked at 30% of revenue, is now falling below 20%. Morgan Stanley estimates that Airtel's India business alone will generate $8 billion in free cash flow over FY26-27.

According to Morgan Stanley, India is currently in an advantageous position in its capital investment cycle. Capital expenditure is likely to remain below the peak levels of FY24 in absolute terms and is expected to decrease significantly as a percentage of revenues compared to the previous cycle, as the company enters a monetization phase.

The investment firm also projects that Airtel's home broadband service, utilizing 5G Air Fiber, will triple its revenue to Rs. 145 billion by FY28, serving 26 million customers. Enterprise services are projected to reach Rs. 304 billion, boosted by investments in data centers. These non-mobile businesses are currently growing earnings at an annual rate of 20% and now account for 21% of Airtel's core revenue.

Airtel is expected to continue gaining market share, maintaining a 31-32% share of 4G/5G subscribers and capturing approximately 40% of industry revenue by FY28.

Interestingly, the report identifies Vodafone Idea as a potential "wildcard." If the company manages to secure funding and regulatory relief, it could potentially slow down the momentum of the Airtel and Jio duopoly.