Bharti & Idea take the call to ring in change in tariffs

Written by fe Bureau | New Delhi | Updated: Jan 24 2013, 07:13am hrs
The countrys top two mobile operators, Bharti Airtel and Idea Cellular, on Wednesday began a calibrated approach towards raising tariffs for voice calls in the prepaid segment, which accounts for more than 85% of their revenues. Both companies said that while the headline tariff the pulse/second rate has not been increased, some promotional offers, discounts and free minutes have been withdrawn in some schemes in some circles. By doing this the operators would be able to increase their realisable rates. Simply put, what the operators have broadly done is while not raising the price of prepaid vouchers, they have either reduced the talk-time on them or decreased the validity period.

Explaining the strategy and the rationale behind the hike, Hemant Joshi, partner, Deloitte Haskins & Sells, said: Price hikes may be gradual. Lets assume an operator is generating 1 billion minutes per day. An increase of 1 paisa per minute would increase annual revenue by R360 crore and an increase by 2 paise would increase annual revenue by R720 crore. Being a volume game, small increases can benefit the sector.

There is no change in the headline tariff. In most circles we have reduced promotional benefits and free minutes on both acquisition and existing usage, a Bharti Airtel statement said.

We are committed to enhance value for our customers through continued investments in network, technology, customer experience and life enriching services, the statement said.

Idea Cellular did not issue any statement but the company confirmed withdrawing certain promotional discount schemes for new subscribers. These schemes were valid for new subscribers for a period of six months. As the period ends, we would not extend them. However, there has been no increase in headline tariffs, a company official said.

Though Vodafone India, the country's third major operator, hasn't increased tariffs as yet, it welcomed the move by the other two and indicated that it may follow suit. We welcome the price rationalisation for bonus cards, special tariff vouchers and free minutes from our competitors. We feel these were inevitable given the sharp input and energy price increases in the country. We are studying these moves individually across all our circles. We are inclined to follow to maintain consistency and competitive position though we havent decided on our precise circle-wise moves, the company said in a statement.

The development saw Bharti's share close up 4.44% on the BSE at Rs 367.25 while Idea's closed up 0.72% at Rs 118.50.

Headline tariffs in the industry currently vary from circle to circle and operator to operator, and ranges from 1.2 paise per second to 1.5 paise per second. But what actually comes into the hands of the operators is a very small amount, ranging between 27 paise per minute for newer operators and 43 paise per minute for incumbents. Tariffs at which customers are acquired are much higher, ranging between 43 paise per minute to 60 paise per minute. Operators are now trying to raise the realisable amount.

Explaining the kind of changes done in the tariffs at Bharti Airtel, an official said that in some circles full talk time was being offered in recharge vouchers for as low as Rs 30, which has now been raised to Rs 50-60. Further, minutes given in special value vouchers have been reduced in some cases. For instance, if a special value voucher for Rs 71 came with 135 minutes, it could have been revised to Rs 97 for 125 minutes. Similarly, on a smaller denomination, a special value voucher for Rs 22 for 50 minutes could have been altered to Rs 22 for 40 minutes. In some cases, the number of days the voucher remains valid has been brought down. For instance, for the Rs 45 voucher, the validity could have been brought down in some cases from 14 days to 10. Through such measures, the company would be able to increase its realisable tariffs.

Mobile tariffs in India are the lowest in the world and operators have been often stated that increased costs require tariffs to go up. In an interview with FE recently, Bharti Airtel's outgoing CEO Sanjay Kapoor had said, Tariffs have eroded by 40% in the past 10 successive quarters while costs on the other hand have increased significantly. If you were to ask me, prices should have increased as of yesterday.

Under the regulatory norm, operators have forbearance with regard to tariffs and can make changes in it without any prior approval from the Telecom Regulatory Authority of India. However, after making changes they have to file the tariffs with the regulator within a week's time.

Why have the operators chosen now to make such adjustments in their tariff plans after a tariff war in 2009, which saw a race towards the bottom Analysts and company officials explain that with gross additions in the industry coming down, the pressure on operators' to throw in freebies to garner subscribers has gone. Further, with spectrum not being given any more based on the subscribers one has, there is no longer the pressure to have quantity irrespective of quality. However, since the market is still price-sensitive and there are about six to seven operators who are quite competitive, each player wants to move cautiously and, therefore, is refraining from an across-the-board hike in headline tariffs.