Increasing call rates the new reality of Indian telecom sector

Indian mobile telephone companies have come a long way and no longer perceive lowering prices and increasing subscribers as tools for survival. To ensure their sustenance, telecom players in India are slowly hiking call rates and doing away with promotional offers.

"The reason behind increasing call rates is that none of the players has a serious incentive to lower prices. The intensity of competition has come down after many players left the Indian market following cancellation of some licences after 2G scam," Mahesh Uppal, director, Com First telecom consultancy, told IANS.

Now the telecom players are concentrating more on usage and not on the number of subscribers. "Certainly not on the number of SIM cards they are selling," Uppal added.

Earlier this month, Reliance Communications raised call rates by 20-30 percent across India. Bharti Airtel did away with its promotional offers in January. But Idea Cellular does not plan anything of that sort yet, said Rajat Mukarji, chief corporate officer of the company.

"The cost of spectrum has gone up. The cost of providing services has gone up. The companies are not trying to undercut one another despite being competitors. The problem seems common to all the telecom operators. The competitive market is still sufficiently competitive to deter collusion," Uppal added.

According to Romal Shetty, head (telecom) for KPMG in India, rates in the country "are the lowest in the world. The quarter-on-quarter results of the telecom companies show that they are clocking lower margins. The EBITDA (Earnings Before Interest Depriciation and Amortisation) margins are under pressure. Lowering prices does not result in a competitive advantage. The companies are struggling to survive."

He opined that even if the telecom operators increase prices by 10-20 percent, this will not hugely impact their businesses.

"Continuously lowering prices was proving to be counter-productive. Even the quality of customer service was going down. At times, it is important to apply some checks and balances as well," Shetty told IANS.

Rishi Tejpal, Principal Research Analyst, CSP Business Strategy, Gartner Technology & Service Provider Research, said telecom companies in India have seen constant declining margins in the last few quarters. The Average Revenue Per User (ARPU) in India is among the lowest in the world.

On hiking call rates, he said: "This step has been taken to rationalize margins. The operators had been thinking about this for quite some time; now they have put this into action as they are now left with no other options, considering the increasing costs and declining margins."

Even Reliance Communications, while increasing prices, said in a statement that the Indian telecom industry was now heading for a consolidation phase, with smaller operators shutting down or scaling down their operations and easing off hyper-competitive pressures. This will help the pricing power move back to serious, long-term and pan-India operators and positively impact profitability.

Tejpal said rising call rates are usually linked with declining usage and thus the impact on ARPU (average revenue per user) might not be significant. But average revenue per minute will be impacted and it will go up, he added.

"It is too early to say whether ARPU will actually go up or go down, but the average revenue per minute will definitely increase. It will take atleast another quarter or so to see whether it is impacting an operator's revenue. Some of the operators have not directly increased rates but have reduced freebies and promotional offers, which will make the average user to pay nearly 20-30 percent more," Tejpal added.