New Delhi: Sanath Ray retired from his government job the day before his newly wed daughter left for the US with her husband, roughly three years ago. Now he lives comfortably on his government pension, dabbles a little in equities trading on the Bombay Stock Exchange, and loves telling his daughter how cheap it is to stay right where he is, rather than spend so much more moving to the US, as she has been advising him to do.
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Ray’s favourite arrow in his quiver of rhetoric is this. “I don’t miss my daughter at all now,” he says. “In fact, I talk to her more often than when she was right here living in the same house as me. It would be more expensive to talk to her over the phone locally if I stayed [in the US] than it is to talk to her on the international rates I now get.”
Ray is one of the millions of beneficiaries across India, the second largest telecom market in the world and the fastest growing, of a raging tariff war. Ever since Tata Teleservices Ltd began billing its customers for their usage per second, telecom operators have vied to slash prices. The tariff war has now also expanded to include short messaging service (SMS) and roaming charges.
From a rate of Rs16 per minute in the mid-1990s, telecom charges have crept asymptotically towards zero. A hitherto-fantastic vision has now begun to materialize: That there is, in fact, such a thing as a free phone conversation. “The scale has led many to believe that there may soon be a time when mobile calls will be free,” says an analyst with a Mumbai-based brokerage firm, asking to remain anonymous because he is not authorized to speak to the media.
A free voice plan could work in a number of ways. For one, an operator could bundle calls along with data and broadband, priced in such a manner that the other services pay for voice. This breed of plan would work only with operators who offer a number of services, explains Atul Bindal, president of mobile services for Bharti Airtel Ltd, India’s largest mobile services operator.
Bindal himself doubts that voice will remain completely unmonetized. “As in free Internet service, the consumer would still have to pay to be connected,” he says. But he sees telecom standing “at the intersection of a number of other industries”, spawning innovative business models. “With 3G coming, operators could offer combos of voice, data and maybe some m-commerce, and charge for only two of these three services.”
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By another model, already present in countries such as the US and the UK, users may be charged a flat fee per month to talk as long as they desire, the analyst points out.
Graphic: Ahmed Raza Khan / Mint
But in a market like India, a large share of revenue accrues from rural areas, where services earn less than they cost to deliver. “The firms have to make as much revenue from every call as possible right now,” he says.
Kunal Bajaj, managing director of BDA Connect, a strategy analysis firm, outlines one possible scenario with simple arithmetic. “For instance, some firms can charge a flat rate for SMS on a per-month or per-day basis,” he theorizes. “The average revenue for SMS is Rs20 a month, and if an operator has a plan where a subscriber pays Re1 a day for free SMS, then the operator is getting Rs30 a month, thereby increasing their revenue from SMS by Rs10 a month.”
A third possibility involves the subsidy of voice by advertising. “As the market stands now, we are seeing increasing segmentation of users happening,” Bindal says. “Some users don’t mind receiving advertisements. But these advertisements have to bring value to the operators...for this to be viable, there has to be a critical mass.”
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But there are disadvantages to such pricing policies. “The downward spiral in price would lead to a downward spiral in quality of services,” Bindal says, and it would “not be sustainable for operators who have nothing else to offer apart from voice”. Cutting rates purely to keep up with the competition may involve ignoring a slew of other costs: licence fees, spectrum charges, taxes, interconnection charges, commissions for distribution channels, and infrastructure costs.
“Whether it is advertisement-supported or even get-paid-to-use-your-phone business models, the ecosystem for them to work in India is just not there,” Bajaj says. Contrary to the present trend, rates may even begin to inch back upwards. “The operators are already charging below cost and that cannot go on for long.”