Mobile Tariff Wars

Tata Teleservices Ltd. (TTSL) knew it had to be different with a capital D if it was to stand out from the crowd of mobile operators with their fancy commercials, brand ambassadors and tariff plans. But what it did next when launching its GSM service is still sending tremors through the price-competitive market.

The Tata Group company bet on its highly-rated network quality to offer a one paisa per second pricing for local calls for its new GSM offering—Tata DoCoMo. Since then, TTSL has been gaining subscribers faster than its rivals.

As Anil Sardana, TTSL’s Managing Director, boasted to Business Today: “No one else has the guts to launch such a plan.”

For the industry, Shock #2 came in the first week of October when, at the International Telecom Union's meeting in Geneva, J.S. Sarma, Chairman, Telecom Regulatory Authority of India (TRAI), spoke offthe-cuff that TRAI would study whether “per-second” billing should apply to all .

When the news reached India on October 5, the three large listed telcos— Airtel, Reliance Communications and Idea—lost over 10 per cent as investors figured that a persecond tariff would ravage bottom lines. TTSL is not listed.

Why the panic? Average Revenues Per User (ARPUs) have been declining sharply. TRAI’s latest report showed that ARPUs for GSM users declined to Rs 185 per month in the April-June quarter from Rs 205 the previous quarter. ARPUs for CDMA users declined to Rs 92 from Rs 99 in the same period.

Sub-minute pricing plans had been tried—and dumped—in 2003 by both TTSL and its CDMA rival Reliance Communications, when they offered 15-second pulses to attract GSM users to the then newfangled CDMA platform.

This time, Reliance Communications responded to Sarma’s comment with a “Simply Reliance” scheme that offered a simplified price plan of 50 paise per minute for all calls. This seems to be the cheapest now.

Reliance Communications President Mahesh Prasad told this magazine that all other schemes would be terminated. Chennai- based Aircel was also matching Tata DoCoMo’s offer, just as government owned Bharat Sanchar Nigam Ltd. was, albeit in pockets.

Reliance Communications is the #2 player with 84 million subscribers, so now everyone was trying to figure what market leader Airtel would do.

Nothing. Said Manoj Kohli, CEO, Bharti Airtel: “We have faced these challenges in the past too... what we are pursuing is revenue market leadership, not numbers, which may not be active or paying.”

TTSL’s move has left a clear winner: the consumer. A TTSL executive claimed that, on average, users get billed “17-23 per cent more than the airtime they use, because no one talks ‘exactly’ for a minute.”

The clear losers: the shareholders. According to analysts Edelweiss, Reliance’s 50 paise plan assumes an effective revenue of 42 paise per minute, almost 30 per cent less than the industry average of 58 paise a minute in the first quarter of 2009-10. It cost Reliance 35 paise to deliver a minute of airtime, Bharti Airtel 40 paisa and Idea Cellular 42 paisa. But another equity house says the maximum revenue potential per minute for Reliance is just 35 paise per second.

Both Sardana and Prasad argue that they expect volumes to increase and so costs to come down. Industry insiders say older players like Vodafone-Essar and Airtel are not very worried because of their post-paid users, who yield a much higher ARPUS than the pre-paid ones. The only worry is that investments could suffer if revenues are in a pinch.

Also, a weak point is the significant dichotomy between subscriber growth and revenue growth. India’s mobile subscriber base went up 50 per cent between June 2008 and June 2009. Revenues of listed telecom companies increased by under 11 per cent in the same period.

With operators left with just one card, pricing, they are praying that Sarma does not put down his thoughts on paper.