New Delhi: Anil Ambani-controlled Reliance Communications Ltd slashed 3G charges by half on Thursday, lowering them to almost the same level as that of 2G data, a move that’s expected to kick off a new tariff battle among telecom operators, this time for mobile data services.
The new tariff, for all 13 circles where the telco provides 3G services, has come down to Rs.123 for 1 GB of data, from the earlier Rs.247. The telco charges Rs.125 per GB of data over the 2G network. Users with 3G phones on 2G data plans will get automatically upgraded.
Gurdeep Singh, president and CEO, wireless, Reliance Communications.
The company aims to get a 40% market share of India’s smartphone users by 2015, up from 14% currently. Sales of smartphones is likely to rise to 10 million a month in the country by 2015 from 2 million now, Singh said.
While Singh declined to comment on whether RCom’s new tariff will be matched by competitors, analysts and experts said there was a good chance the rest of the industry will follow. A 2009 tariff war was triggered when Tata DoCoMo (Tata Teleservices Ltd) unveiled a one paise per second tariff for phone calls.
“This is a very competitive industry. The industry offerings are always very similar in terms of price, speed, etc. There will definitely be a change in the status quo but the larger issue is the supply and demand,” said Hemant Joshi, a partner at the consulting firm Deloitte Haskins and Sells.
“If a company has unused capacity and is able to get incremental revenues for that, then it is always good. The fixed costs are already there and additional revenue is always welcome,” he said. “For data, content is very important. Real revenue will only come when there is relevant content, which is very limited right now.”
Joshi declined to comment on individual companies on the grounds that it was against company policy.
Some analysts said the move wouldn’t have any impact.
“We don’t foresee RCom’s rate reduction to have material impact on other telcos due to its poor perception of brand and service and its inferior 3G network presence. RCom has around 11,000 3G BTS (base transceiver stations or telecom towers) versus 25,000 for Bharti (Airtel Ltd) and 17,000 for Idea (Cellular Ltd),” Himanshu Shah, research analyst, HDFC Securities Ltd, said in a Thursday report.
“Nevertheless, the rate reduction by RCom is marginally negative as it triggers a fresh war in the high-growth data space. Though less likely, reaction to RCom’s rate reduction by peers would be negative,” he said.
“Secondly, availability of capital to RCom from securitization of future proceeds from deals with RIL (Reliance Industries Ltd) may be enabling it to indulge in a price war. In our opinion, easy availability of capital has been the root cause of tariff wars during FY10-11. Funding tap had dried up for the past two years compelling challengers to relook at their business model and raise prices. Though the appetite remains weak, opening up of FDI (foreign direct investment) to 100% in telecom could add fuel to fire,” Shah wrote.
Third generation, or 3G, mobile services refer to high-speed wireless data service offered by telcos that were successful in the 2010 auction of spectrum in the 2,100 megahertz (MHz) band. The services currently account for 3-4% of the revenue earned by telecom firms. Around 5% of India’s 867 million mobile users have activated their 3G services so far.
In May last year, the top three telecom companies—Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd—cut their 3G prices by almost 80%, from 10 paise per KB to 2-3 paise per KB. Recently, other operators such as Vodafone have slashed 2G data rates by around 80% in select telecom zones. Tata DoCoMo, too, cut the prices of both 2G and 3G services, last month.
On Tuesday, a panel of key ministers agreed to increase the limit of FDI allowed in the telecom sector to 100%. The move is expected to fetch much of the nearly Rs.10,000 crore needed by the sector in the coming years.