Despite big operators’ efforts, Indian telecom tariffs slide to 30 paise/min mark

If the traditional, big Indian mobile operators were dreaming of increasing tariffs in what is often called the world’s most competitive market, they have got another thing coming.

It was in July last year that big operators, such as Airtel, Vodafone and Reliance, proclaimed the end of the cheap-tariff era and hiked call rates by about 20%. Till then, they were charging about 1 paise per second, hit by aggressive price competition from new entrants like Uninor, Videocon, MTS and Tata DoCoMo.

Stock analysts were quick to pop open the bubbly, celebrating the end of a bloody, profit-damaging period in the industry that started in early 2009 with the entry of Reliance Communications.

Tariffs rose for the first time to 1.2 paise per second from 1 paise, at least for most of the big operators.

However, the dream of higher tariffs seems to be unraveling fast, going by the latest moves.

This week, several Tata DoCoMo subscribers reported getting text messages informing them that the operator is planning to switch to a 30-paise-per-minute experimental tariff for the next 90 days and their rates will automatically be lowered.

While the offer may not sound extra-ordinary at first — after all, it already had a 1 paise per two second plan in place — what is worth noting is that subscribers do not have to do any special recharges to lower their call rates.

Under the current regime, subscribers have to recharge with special tariff vouchers costing around Rs 30-40 per month to get the 30 paise per minute benefit.

In addition, Idea Cellular, the original tariff warrior, too has jumped in to the fray with a 1 paisa per 2 seconds (for all calls) plan that is actually cheaper than the equivalent plan from Tata DoCoMo. While Tata DoCoMo subscribers have to recharge with a special coupon of Rs 99 to avail of the low tariff, Idea subscribers need to recharge with Rs 91 for 3 months of low tariffs.

The other development that sounds the death knell off the higher-tariff dream is the launch of 10 paise and 30 paise per minute local call schemes by Bharti Airtel, India’s largest mobile operator.

Airtel had been on the forefront of the fight for higher tariffs, supported by Vodafone, and to some extent, by Idea Cellular and Reliance Communications.

However, their call for higher rates was rejected by newer operators such as Uninor, Videocon and MTS. The latter kept up their assault on tariffs over the past eight months, offering rates as low as 25 paise (Videocon) and 29 paise (Uninor) per minute, even for long-distance STD calls.

MTS has long had a long-standing 30 paise per minute offer, winning the company a large chunk of the low-end market. (See the chart above on the tariffs in the Indian market, prepared by Uninor.)

With traditional big operators raising tariffs, many telecom subscribers in India simply got themselves handsets that allowed them to be on two networks (dual-SIM) at the same time. While they reserved one SIM slot for their existing, traditional operator, they dedicated the second one to the new breed of low-tariff operators.

This way, not only are subscribers able to remain in touch thanks to the well-developed network of big operators, but are also able to take advantage of the lower tariffs offered by the new networks.

Not surprisingly, while dual and triple SIM handsets are hardly the fashion elsewhere, in India, 57% of the total handsets sold last year supported two or more networks at the same time.

As a result, Bharti Airtel’s decision to launch the 10 paise and 30 paise per minute scheme was seen as inevitable by some observers. Idea Cellular too has launched similar priced schemes in several states.

However, the new move to make 30 paise per minute the default tariff may disrupt the market further as it brings many subscribers, who don’t take advantage of special tariff schemes, into the low-tariff regime as well.

It is also interesting that the TRAI is currently examining the prospect of lowering or abolishing the 20 paise per minute termination charge paid by operators to each other to complete each others’ calls. The 20-minute barrier is largely responsible for keeping the tariffs at the 30 minute level, as a minimum 10 paise per minute is required to meet the costs of the ‘originating’ operator, while 20 paise has to be paid to the operator on whose network the called customer is.

The abolition of the termination charge is likely to bring down long-distance tariffs to the 10-15 paise range.