Tussle of Telecom Tariffs to Tempt the Target Traffic : The WATview
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WATBlog has always kept its readers updated with the latest happenings of the telecom industry. Standing upto its repute of being one of India’s most read techblogs, here we have come up with the latest topic of interest- ‘The Tariff Tussle’.
While there was a time before the 2000s when the rates were as high as Rs. 8-9 with nearly same incoming charges as well. I remember my uncle with the good old sturdy handset of Nokia, using it just in case of emergency. It used to be a novelty back then and a swarm of eyes followed a person talking on a cell phone.
15 years since the first cellular service was launched in India, everything mentioned above seems a long forgotten distant story. Now, India is the cheapest nation in terms of teleservices and the second largest consumer of wireless services on the globe with nearly 450 million connected people and a teledensity of about 35%. And to tempt this target traffic, a new war has started between the telecom service providers.
India currently has around 12 major service providers serving in the 22 circles in the country. Now, with lot of new players getting ready, and with the buzz of 3G and MNP the companies are getting restless to battle this tough competition. And to get the bigger piece of the cake everyone seems fighting for their space. In the past 5 months the tariffs have fallen a whooping 50% and in nearly all circles are under Re. 1 per minute for local calls. The major reason being the 2 big launch of the year- ‘Tata DOCOMO and MTS both offering per second billing which is a completely new take in the Indian telephony scenario. When Docomo started operations in India with call rates at 1 paise per minute, the India minds started working at lightening speeds and the company gained a million customers within a month of its launch in mumbai. Not far behind was MTS, one of the only new players who has license to operate in all 22 circles of India. MTS has launched its services 3 days ago in Delhi after covering 7 circles in India, at the rate of 2 seconds per paisa with an additional cost of Re. 1 per day. Seeing this Reliance has now offered a new scheme of flat 50 paise for everything u do on your phone including the roaming charges, that too at a nominal charge of Rs. 48 for the lifetime. Docomo also offers free 100 sms everyday which is just so tempting to hear. Its a win win situation for consumers. But the story is yet not over. Analysts have predicted a further meltdown of about 20% in the next few months after some more players enter the market.
The new players seem to bullish in their strategy and what basic management fundas tell us is, these strategies may help build up a market share but certainly delay the break even period and hence the companies may not may able to sustain it on a medium and long term basis. And by the the time their variable costs are covered, companies may start making losses. Big houses like Tata and Reliance can surely afford the risk but any new players may not be guaranteed the ‘cushion’ that the incumbents can afford. The negative impact that the established names are facing is falling share prices.
Another Management Principle suggests that once the network is set up, the investment is now a sunk cost and may or may not be recovered; so better play the best game and offer the most competative tarriffs allowed with a survivable margin.
Strategically, the Incumbents (or the safe old guys)- Bharti Airtel and Vodafone- cannot afford to cut down their tariffs to 50% as this will wipe out their whole margins. Still they sit very comfortable as they share a huge chunk of the market which is virtually very stable population believing in the method of the tried and tested and may not switch over that easily. In India these big players have profit ‘cushions’ of about 40% as compared to global average of 20%. But with Increasing competition and still more players arriving from the foreign shores with bigger ‘cushions’ over long periods of competitive bloodbath, they would certainly need to come down to the most competitive offerings. In the whole process consumers may lose out as this virtual ‘austerity’ drive may result in inferior reception quality.
The loop remains incomplete without the mention of TRAI, the regulatory body. The body foreseeing the whole situation has now asked the operators to disclose all the hidden charges and offer transparency to the customers which was condemned publicly by Airtel’s Sunil Bharti Mittal and well covered by WATBlog earlier. This may increase the worries of the operators as this may become a reason for catching the loopholes created by them which customers often miss out. TRAI has also set up a committee to monitor the success of currently running per second plans so that at least one similar tariff plan based on per second billing can be made mandatory for
the other operators.
Amongst the new comers, Docomo seems to be very bullish on Indian Market and has plans to set up an R&D center in India. The R&D centre would primarily look into developing and implementing innovative and customer-friendly value-added services (VAS). VAS contributed 14 per cent of TTSL’s revenue and this was the highest contribution from VAS to a telecom operator’s revenue recorded in the country.The company had a target of churning out 15 per cent revenue from VAS in the current fiscal and 25 per cent, at par with current European levels, in two-three years.
With this overall view I leave on the readers to decide the best as in the booming Indian Economy, its the consumer opinion which matters the most. Stay tuned for more on Telephony at WATBlog.
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companies are reducing there call charges day by day