Shares of Reliance Communications Ltd (R-Com) have risen by 36% from the all-time lows of 46.55 they had reached late last month. The rally started after the company’s comments at its annual general meeting early this month that it will focus on reducing debt through asset sales.

Last week, the company did something more concrete when it raised its base tariff by 25% to 1.5 paise per second from 1.2 paise. Some analysts believe that while the company can lose some of its fringe customers as a result, overall profit and cash flow will increase because of the higher tariffs. Telecom Regulatory Authority of India’s subscriber numbers for July, released earlier this month, showed that R-Com’s customer base declined by more than 20 million to 134 million. The company said that the drop was because it weeded out inactive customers from its network. Put together, the company is clearly signalling that it is getting more disciplined with its pricing and customer retention strategies.

Interestingly, R-Com’s base tariffs are now 25% higher than the base tariffs of market leaders. Of course, it remains to be seen whether the level of discounting the company gives to customers through various offers increases. Most telecom companies had increased their base rates last year from 1 paisa per second to 1.2 paise. And even though the base rate has not been altered in the past year, average revenue realized per minute has either remained flat or has declined as the level of discounting has increased.

Even so, as one analyst at a domestic brokerage firm points out, R-Com is clearly signalling to the market that it is done playing the volume game at the cost of margins. If incumbents such as Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd choose to raise tariffs, they at least needn’t worry about a loss of customers to R-Com just because of a tariff differential. According to the analyst, the company seems to be also indicating that its stretched balance sheet can no longer support an aggressive pricing strategy in the market.

Needless to say, this is good news for the industry. But it remains to be seen to what extent R-Com’s subscriber numbers and volumes are hit as a result of the higher tariffs, especially given the high level of price sensitivity Indian telecom customers have displayed. The markets seem to have decided that the net result will be positive; but it’s also possible that the hike in tariffs may not compensate for the drop in volumes.

And as far as the asset sales go, given the number of false starts the company has had on this front, it makes sense to price in benefits only after something concrete happens.

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