In the fiercely competitive telecom industry, survival has become a battle of the fittest. In a bid to gain market share, service providers are pulling out all stops to outdo one other. In a price-sensitive market like India, a large part of the battle is being played out on this key issue.

In the past month, the price of handsets, long distance, roaming and lifetime prepaid services have all come tumbling down, with telecom companies counting on volumes to drive future growth.

Lifetime validity schemes

It all started with Bharti Airtel dropping its lifetime prepaid service charges from Rs 999 to Rs 495. Soon other companies followed. Reliance Communications, for instance, introduced its own lifetime prepaid card for Rs 499. Idea Cellular and Hutchison Essar also came out with Rs 495 vouchers, a move which Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) had followed.

Lifetime prepaid schemes were initially offered to cater to low-income, lowusage consumers, who would use their mobiles primarily to receive incoming calls. However, these have become a lucrative source of revenue for service providers. In fact, the average revenue per user (ARPU) for lifetime prepaid subscribers is Rs 218 compared to Rs 261 for other prepaid subscribers.

According to Sourabh Kaushal, industry manager, Frost & Sullivan: “Lifetime schemes enable operators to lock in subscribers which benefit companies substantially in the long run.”

International long distance service

The price tussle then moved into the long distance arena. Reliance Communications Limited waged an aggressive attack on the international long distance (ILD) front by pulling down its calling rates to Rs 1.99 per minute to the US and Canada on its Rs 1,900 Reliance Global calling card.

Bharti Airtel followed suit. It revised its call tariffs to the US and Canada to Rs 1.99 per minute for its Rs 2,245 STD and ISD calling cards. This is a 39 per cent reduction over its previous rate. The move is likely to be replicated by other operators soon.

The Indian long distance telephony sector, in fact, seems to be bracing itself for a big overhaul this year. With a plethora of new entrants, a drastic fall in tariffs can be expected followed by a subsequent rise in outgoing and incoming ILD minutes.

Roaming charges

The price war in roaming has been taken to the next level with the new minister for IT and communications A. Raja initiating a zero roaming regime. (Interestingly, former communications and IT minister Dayanidhi Maran had planned to abolish roaming charges.) In line with this, BSNL and MTNL have introduced zero roaming under its Plan 550 which enables customers to avail of 300 minutes of free incoming calls while roaming. Subscribers are charged at Re 1 per minute for incoming and outgoing calls within any visiting network.

The price war in roaming was triggered by Reliance Communications which reduced roaming tariffs for outgoing calls by up to 70 per cent to Re 0.40 per minute on select plans. For incoming calls, Reliance roaming subscribers have to pay Re 1 per minute, down from Rs 1.75 per minute. On the Rs 520 prepaid recharge coupon, all calls in India are charged at Rs 1.20 per minute, while on the Rs 770 recharge voucher, local and intercircle calls cost Re 0.80 per minute and Rs 1.20 per minute respectively.

Handsets

In the handsets segment, CDMA players have intensified competition. By offering handsets bundled with telecom services, companies are undercutting prices.

This move is helping to lower the entry barrier for customers and fuel demand.Reliance Communications recently lowered the bar by introducing a new handset priced at an attractive Rs 777. Tata Teleservices has also reduced the price of its existing handsets.

Meanwhile, Vodafone has launched two low-cost handsets for the emerging markets, including India. The Vodafone 125 and 225 are priced in the $25-$45 range (Rs 1,015-Rs 1,827) and will aid the UK-based service provider to spread its services in the rural areas.

Handset manufacturers such as Nokia and Motorola are also gearing up for the race to reduce prices. This is essential in order to penetrate more remote regions.Nokia, for instance, has launched seven entry-level handsets in India with phones starting from $40. Since low-cost phones have slim margins, companies will compete on the basis of volumes.

The road ahead

According to analysts, the price war has generated a positive atmosphere within the industry. At the same time, they do not expect it to change the competitive landscape of the sector significantly. “It is not likely that there will be only three or four operators left at the end of the price war.The regulator will not allow this to happen.Besides, any move by Bharti and Reliance is being replicated by the other major operators within a few days,” explains Kaushal.

Anyhow, there is room enough for everyone, given that single-digit market shares translate into several million subscribers.

However, Arpita Pal Agrawal, associate director, Infocomm Advisory Services PricewaterhouseCoopers points out: “Price wars lead to operators utilising their economies of scale to the fullest. It has become difficult for new operators to enter the segment, unless they are very large. Without their own networks in place, smaller, regional players present in one or two circles will find it increasingly difficult to keep pace with the tariff cuts announced by larger players.”

All in all, the price war spells good news all around. It will give a fillip to subscriber growth and make telecom services more affordable for users.