The Hindu Business Line : Tariff treat for cell users

ROUND TWO OF the mobile tariff war has just begun, and it promises more fireworks than the previous one. Two weeks ago, when Reliance Infocomm fired the first shot by reducing pre-paid tariffs by 40-60 per cent, it may not have bargained for such a stunning response from its peers, particularly Bharat Sanchar Nigam (BSNL). The latest BSNL announcement not only pegs its rates 10 per cent lower than Reliance's pre-paid offer (matched by other GSM players), but also takes the tariff war to the post-paid segment. By dropping tariffs by 40 per cent in the post-paid segment, BSNL has emerged as the cheapest mobile service provider across both segments. Also, so as not to lose its fixed-line long-distance revenues to mobile, BSNL has brought down the STD tariffs by 33 per cent.

For mobile users, competitive forces are bringing in a stimulating treat in terms of enhanced affordability in both pre- and post-paid segments and wider access across smaller cities and towns characterised by low mobile penetration. One cannot quibble over BSNL's advantage in some respects, such as waiver of entry fees or the Access Deficit Charge cushion to offer these competitive tariffs, but for consumers the results are truly comforting. And as the price war gathers momentum, the mobile subscriber additions, which slowed in the April-June quarter, are expected to see a resurgence. The focus of the mobile service providers is poised to shift towards increasing Minutes of Usage rather than Average Revenue Per User (ARPU). As the April-June study of the Cellular Operators Association of India shows, ARPUs are on a decline, but may be compensated to some extent by higher Minutes of Usage both by pre- and post-paid subscribers.

The GSM operators will also be in a position to sustain this tariff war as their operating costs per subscriber (such as network, selling and administrative expenses) are coming down and can surely be squeezed further. Since the fourth cellular licensee networks have also matured to a large extent, the incremental capital expenditure per subscriber, particularly in metros and non-metro cities, will be lower. As regulatory costs (such as revenue share) are also falling, the operators should be able to keep tariffs down. Given these factors, the operating margins, as a percentage of revenues, of these operators may not be affected significantly.

Ultimately, the tariff war is also a reflection of the scale economies that are coming into play in the mobile industry. As tariffs head south and the mobile subscriber base, which stands at 40 million today, starts expanding again, the second round of consolidation involving both big and small operators (without a national footprint) may happen. The two enablers that may be crucial in carrying this phase forward will be the spectrum allocation policy, to handle a much larger subscriber base, and clarity on foreign direct investments to step up the mobile infrastructure across the country. It is also likely that some GSM or CDMA operators will raise funds through public offerings earlier than expected.

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