Mumbai/New Delhi: India’s second largest mobile service provider by subscribers, Reliance Communications Ltd, or RCom, slashed call charges to 50 paise a minute, entering a tariff war that may erode profitability in a market where average revenues per user are tumbling even as user numbers surge.
The Simply Reliance plan from the Anil Ambani-owned company will set a new price floor for call rates besides eating into income as RCom’s competitors are forced to retaliate and creating entry barriers for new players, analysts say.
The RCom plan follows the the surge in Tata Teleservices Ltd users after its units introduced new payment plans.
RCom, with a total of 84.11 million mobile subscribers, said that starting Tuesday, the company will have just “one market facing plan” charging 50 paise a minute for all local and STD calls, made from either its GSM or CDMA networks to any other landline or mobile phone in the country. The rate applies on all roaming calls and at all times of the day or night, without any hidden charges. RCom chief marketing officer Nilanjan Mukherjee called it a “no conditions apply” plan in which “what you see is what you get”, in a briefing to reporters on Monday.
While subscribers may benefit, analysts are worried. “The tariff war was already on. This could just put it in the last leg. Tariffs have already been falling for sometime, but now we will have to see how far it is going to fall before it finds a floor. Also, there is no competitive advantage in reducing price. It will be matched,” said a Mumbai-based analyst with a local brokerage, who didn’t want to be identified citing company policy.
Another analyst with the Mumbai-based Indian arm of a global brokerage termed this tariff war “a race to the bottom” and RCom’s newest plan as something that “will change the way the industry has been working” by lowering profitability. “Other companies will definitely respond to it but it will upset the plans of new telecom players since they may not have factored such a sharp decline in tariffs,” added the second analyst.
Etisalat, Swan, Aircel and Telenor-Unitech are some of the newer firms looking for a telecom debut.
RCom’s move is the latest in a series of tariff changes. At the end of August, Tata Teleservices reported a significant rise in its subscriber additions largely due to the aggressive pricing it had adopted for both its GSM network-based service branded Tata DoCoMo and its CDMA-based network sold under the Tata Indicom brand name.
The firm that was adding just about a million new users each month, got 3.4 million new subscribers in August, making it the top operator in terms of the metric for the month. Bharti Airtel Ltd, which takes the pole position usually, came second with 2.8 million new subscribers.
In July, too, Tata Teleservices showed healthy growth in new additions with 2.2 million new subscribers.
Vodafone Essar Ltd has a region-specific package, where a subscriber in New Delhi can make calls to surrounding states at 50 paise each. Those in the south can make calls in the region at 50 paise per minute. Bharti Airtel’s just-launched Advantage Plan allows users to make calls on its network at 50 paise a minute. Tata Indicom has announced its pay-per-call offer, where local calls will cost Re1, while STD calls will be Rs3 for an unlimited duration. Tata DoCoMo offers tariffs based on a 1 second pulse, where a call costs 1 paisa per second.
RCom’s Mukherjee said mopping up market share was one of the reasons behind the latest offensive. “When entrants are coming in with their plans, and some of the incumbents were matching it, we had to counter it with a consumer benefiting plan,” adding that the idea was to “clean up the other operators”.
Mukherjee explained that there was a befuddling multiplicity of plans—2,700, both prepaid and post-paid counted together—across the country and there was a need for something simpler.
When asked if this was in preparation to number portability, allowing subscribers to switch mobile service providers without changing their phone numbers that will be implemented in December, Mukherjee said: “It is in keeping with that.”