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Tariff war and peace

It would be best if all the three telecom firms started taking tariffs back to levels that would shore up their financial numbers. This may seem like collusion from a regulatory point of view. But, given the depths to which charges had fallen, it would only signify a return to market normalcy

Vodafone Idea seems set to hike its telecom tariffs. This is a company that recently drew a fresh round of investment needed to stay in business after it was slapped with a massive bill of arrears last year on account of a revenue-sharing arrangement with the central government that led to a dispute settled by the Supreme Court. Its rival Bharti Airtel, which also had to scramble for funds to pay its tab, is reportedly keen to raise its charges, too, but its move might depend on the pricing plans of Jio, the Reliance service that set off a war of attrition with its 2016 entry.

If Jio doesn’t raise its ultra-low rates, the other two operators risk losing customers to it. Price sensitivity is very high in India. But if tariffs don’t rise, this sector may be unable to sustain a minimum of three private players needed for sufficient rivalry to prevail and the market to thrive. Right now, it’s an unstable equilibrium. It would be best if all three started taking tariffs back to levels that would shore up their financial numbers. This may seem like collusion from a regulatory point of view. But, given the depths to which charges had fallen, it would only signify a return to market normalcy.

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