Mobile tariffs to rise, discounts reduce in 2014: Vodafone, Airtel

The fresh spectrum purchases at February 2014 auction were being cited as one of the factors for the likely rise in tariffs.

Marten Pieters, the CEO of the country's second largest service provider Vodafone, said the mobile telecom industry has reached a point where annual tariff increases are needed to sustain itself.

Pieters also said the recent spectrum auction combined with others expected in the next couple of years will worsen the health of the mobile telecom industry at a time when it is yet to recover from the "excesses" of the 2010 auction.

"We have had declining tariffs for 18 years; this cannot be sustained forever. We believe the point has come where we will have to increase our tariffs every year, depending on cost levels," Pieters, who is Vodafone India Managing Director and Chief Executive Officer, told PTI.

Bharti Airtel, Vodafone and Idea Cellular, the three biggest mobile service providers in the country, and Reliance Jio were among eight companies that bid a combined Rs. 61,162 crores for spectrum in the 900MHz and 1800MHz bands offered by the government during a 10-day auction that ended on February 13.

(Also see: Spectrum auction: The complete list of winners)

"The industry has not yet recovered from the excesses of the 2010 auction and this auction, combined with others expected in the next couple of years, will worsen the industry's health further," Pieters added.

The country's mobile subscriber base is currently 88.1 crores, according to Trai.

The value of the spectrum at this month's sale was Rs 47,933.40 crores at the reserve price. Companies can pay part of the amount upfront and the rest in instalments.

Pieters said payments for spectrum in the just-concluded auction will be funded by debt and to pay for the loans, either tariffs need to go up or service levels and investments have to be cut back.

"If you look across the world, spectrum in India is expensive: we pay a lot per megahertz in an auction and then 5 percent of revenue in the form of spectrum usage charges. This will invariably have consequences," Pieters said.

Telecom operators have been cutting back on freebies and discounted minutes to maintain profitability. Analysts say this trend may continue as they have to pay for the fresh spectrum purchases.

"We have always maintained over the last few quarters that there is room for reduction of discounted minutes and a gradual movement up of voice realisation," Bharti Airtel (India) Joint Managing Director and Chief Executive Officer Gopal Vittal said after the December quarter results.

He told investors the difference between headline and realised tariffs was about 30 to 40 percent, providing substantial headroom to cut back on discounted minutes.

While it is too early to comment on tariff hikes, there certainly would be upward pressure on data tariffs and discounted minutes would be reduced, said Rajan S Mathews, Director General of the Cellular Operators Association of India (COAI), the GSM industry body.

"There may also be 1-3 paise hike in voice minutes in over nine months," he added.