The Hindu Business Line : `Frequent tariff cuts may retard telecom growth'

New Delhi June 1 Frequent reduction in tariffs could retard the growth of telecom sector according to the Cellular Operators Association of India (COAI).

While the revenues of most telecom operators have been on the upswing despite steep reduction in tariffs over the last few years, Mr T.V. Ramachandran, Director-General, COAI, cautioned that operators could face a fund crunch if the Government did not simultaneously compensate by reduction in duties and levies. "Reduction in tariffs is good but excess competition can kill the golden goose. We have a teledensity of only around 15 per cent and cellular networks have covered only 60 per cent of the population. To achieve the national target, operators will need large amounts of money going forward which is not helped by falling tariffs. Therefore the Government needs to lower the other financial burden in the form of duties and levies or else operator's plans to expand their network to the unconnected could take a back seat," he said.

Analysts' view

Analysts pointed out that operators have so far managed to keep their margins intact by increasing volumes and smart packaging of tariffs.

For instance the latest reduction in roaming tariffs is being given on plans with higher monthly rentals. So while roaming charges have been dropped to Re one, the operators get an assured monthly fee of nearly Rs 500 at a time when the ARPU (average revenue per user) is at less than Rs 350.

Long distance rates

The round of price cuts in the international long distance segment has also been brought about in the pre-paid cards where customers have to assure usage of over Rs 1,000.

While local call tariffs have stabilised over the past year, operators have announced reductions in long distance and roaming charges, which account for almost 20 per cent of their revenues. The average revenue per user per month has declined from Rs 362 in December 2005 to Rs 316 in December 2006. However, during the same period operators saw an increase in the minutes of usage per subscriber from 393 minutes to 454 minutes. The subscriber base has also increased from 124 million to over 150 million during the period.

Revenues for GSM operators alone increased 58 per cent from Rs 4,010 crore for July to September 2005 quarter to Rs 6,330 crore for July to September 2006 quarter.