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Mobile tariffs to rise further?

Sunil Bharti Mittal, chairman of Airtel, said recently that mobile tariffs have to rise further. Does this signal a forthcoming price hike, or will operators offset rising costs some other way?

Indian mobile users have been very lucky to have enjoyed very low tariffs for many years, but we ran out of that luck when most mobile operators recently increased tariffs by as much as 20 per cent. And for those who thought there would be no more hikes there is bad news.

Sunil Bharti Mittal, chairman, Airtel, said to PTI a few days ago, “Rates in India have to rise significantly in order to offset the lower revenue from rural markets, where users typically make fewer phone calls than in cities and towns.”

Airtel, Vodafone, RCom, Idea, and Tata Teleservices have all increased tariffs by 20 per cent with new call rates being 1.2 paise per second up from 1 paisa. STD rates have also gone up in some cases to as much as 1.5 paise per second. Some operators like new entrant Uninor have started charging for calls made to customer care as well, which they were not doing earlier despite the older players doing it for quite some time.

Some operators, like BSNL, had planned to reduce the validity of recharge vouchers. Though that hasn’t happened so far, other operators might implement this idea as it is a more discreet way of hiking tariffs.

Most operators, we fear, will choose the indirect means of hiking prices, such as by reducing the validity of a recharge. This way people will need to spend more, thereby increasing revenue per user, something that BSNL had planned.

Operators can also take some existing discounts off the market. This way, consumers might not really understand that the tariff has been hiked, and will not switch to other operators with different deals.

The other possibility is that there may not be a hike, but for that to happen the government has to notify the new exit guidelines for telecom operators at the earliest. Most new operators that came into business in 2008 have not been able to turn profitable, and there have been demands to allow mergers and acquisitions in the industry so that some operators can walk away by selling their business to the bigger, well-established players.

The Government of India has announced that it is working on changing policy to allow that. If that happens, there will be consolidation and reduced competition especially in the low margin rural market as most new players have been targeting rural areas since urban areas have already been saturated.

With consolidation, per-user costs will come down drastically as the installed infrastructure will be used to fuller capacity, thereby giving operators a chance to maintain the current pricing levels.

Operators are also exploring the intra-circle route to expand network into areas where they don’t have 3G spectrum. As the current user base of 3G is low, renting out some capacity to rival operators would lead to better utilisation of spectrum as well as installed capacity, and thus reduce overall cost.

3G is a high revenue business and will offset some of the cost burden on the 2G business, and give operators enough margin to focus on adding more services to the bouquet instead of burdening users by increasing the price of existing services.

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