Call costs to rise as telcos cut freebies3 min read . Updated: 23 Jan 2013, 11:59 PM IST
Airtel, Idea reduce discounts to customers, shares rise; move may not deliver significant enough revenue boost
New Delhi: Bharti Airtel Ltd, India’s biggest phone company, and No. 4 Idea Cellular Ltd on Wednesday reduced the discounts and freebies on offer to customers in telecom zones across the country, effectively raising calling costs for mobile phone users. Vodafone India Ltd, the second biggest mobile phone operator, is expected to follow suit.
The move was welcomed by analysts, but it may not be sufficient to deliver a significant enough boost to the revenue of the telcos that are hurting because of increased costs, competition and spending on spectrum.
Bharti Airtel, which has posted 11 consecutive quarterly declines in profit, said it had reduced promotional benefits and free minutes offered to both new and existing subscribers.
“We have been reiterating that increase in prices is inevitable, which is reflected from the fact that despite rising costs, tariffs have been falling over the past 12 quarters," a Bharti Airtel spokesperson said.
“This continuous decline in margins and increasing costs have had an adverse impact on the long-term financial health of the industry. This revision in prices is in line with these increasing costs."
Bharti Airtel made three changes, effectively raising call rates—it increased the threshold value of its full talktime vouchers, reduced the talktime on special tariff vouchers and cut the validity period of most of its tariff plans.
For instance, where the threshold value of a full talktime voucher was ₹ 30 earlier, it has gone up to ₹ 40-55 depending on the telecom zone. A ₹ 71 voucher that offered 135 minutes of talktime now gives consumers 120-125 minutes. The validity period for a ₹ 45 voucher has been cut to 8-12 days, depending on the telecom area, from 14 days.
Idea Cellular said it too had cut back on some promotional offers, effectively raising call rates. Yet, both Bharti Airtel and Idea Cellular said they hadn’t tweaked their basic call tariffs.
More than 70% of the prepaid subscriber base in India operates on discounted recharge vouchers and tariff plans, making the overall rate per minute some 15-25% lower than the basic call rate. Around 95% of the 900 million mobile consumer base, in India, is prepaid.
“With around 70% of voice being sold on special tariff vouchers across players and effective outgoing rates for the sector overall being 16% lower than base rates, lowering voice discounts will allow the telcos to improve realized rates in our view," Rajiv Sharma, an analyst with HSBC Securities and Capital Markets (India) Pvt. Ltd, wrote in a 14 January report on Idea Cellular.
“Nevertheless, we believe with government raising railway fares, LPG prices, Indian telcos have a great excuse to raise tariffs as well," Sharma wrote.
Shares of Bharti Airtel closed at ₹ 367.25, up 4.44% on Wednesday, while shares of Idea Cellular ended the day at ₹ 118.50, up 0.72%. BSE’s benchmark Sensex gained 0.23% to 20,026.61 points.
The move comes in the face of rising operational costs, especially with diesel that is needed to run generators to power telecom towers becoming more expensive, and at a time when phone companies face a steep bill for spectrum and renewal of licences as well as a one-time fee for radiowaves they hold above the designated start-up 4.4 megahertz of spectrum.
The government will sell spectrum through bidding in March, four months after the last auction, with the minimum price at both auctions more than six times the previous fees.
“Operators have to account for the increased costs of spectrum sale in November and another auction coming up in March. Capping free minutes as well as call vouchers is essentially working around the benefits extended to consumers, but understandably call prices will also go up in a phased manner if the industry has to keep sustainable service delivery," said Sivarama Krishnan, executive director at PricewaterhouseCoopers India.
A Vodafone spokesperson said the company hasn’t tweaked its tariffs or promotional offers.
“We welcome the price rationalization for bonus cards, special tariff vouchers and free minutes from our competitors. We feel these were inevitable given the sharp input and energy price increases in the country. We are studying these moves individually across all our circles. We are inclined to follow to maintain consistency and competitive position, though we haven’t decided on our precise circle-wise moves," the spokesperson said.
Telecom analysts based in Mumbai said the changes could account for an increase of as much as 7-10% of the effective rate per minute.
“We can only see a definite impact in the earnings for the current quarter and the next one. It’s difficult to estimate as different changes have been made in different markets (circles). The complete impact of the changes will only be seen in the next two-three quarters," a Mumbai-based telecom analyst working with a multinational investment bank said. He requested anonymity because he isn’t authorized to speak to the media.