The tepid 2G spectrum auction could be the inflection point for the telecom sector to hike tariffs, a move that has been in the offing for some time.

The industry expects operators to raise calling charges from the third quarter of this financial year or withdraw promotional and discount schemes. These would also lead to a 25-30 per cent improvement in voice-per-minute realisations over the next four quarters.

“Of course, it will go up, and that’s clearly the direction of tariffs now. You can’t price the key ingredient, spectrum, at high prices and expect the operators to absorb the impact,” Cellular Operators Association of India Director-General Rajan Mathews said.

The companies may increase tariffs by a couple of paise, and after gauging the market reaction, look at “further” hikes. The hike would differ from operator to operator, Mathews added.

The GSM spectrum auction was dubbed a failure with just five operators bidding for the spectrum, while the CDMA auction had also failed with no takers.

“The failure of the GSM auction would result in less competition per circle for operators, and for subscribers, with limited options. Further, there would be mergers or acquisitions and consolidation in the sector,” Kamlesh Bhatia, research director at Gartner, said.

Operators need funds

The operators also need funds for newer initiatives — such as broadband — and as voice continues to be the most important source of revenue, hiking tariffs is just logical.

“We already saw some of it coming,” Bhatia said, adding that operators are re-evaluating cost-structure and market positions. “Hikes would follow.”

Falling subscriber additions and decline in the number of operators after the 2G spectrum scam would also result in a tariff hike. A rise in per-minute realisations in voice business and moderating of competitive pressures among others are benefits analysts expect for the sector.

“I was expecting the tariffs to go up slightly post the third quarter and the high price of spectrum would be one reason,” Ankita Somani, research analyst (IT and Telecom) at Angel Broking, said.

The combination of tariff hikes and elimination of free minutes would lead to a 25-30 per cent improvement in voice-per-minute realisations over the next four quarters for the larger players, said Suresh A. Mahadevan, Managing Director and head of equities at UBS Securities, said.

Shobhit Khare, Telecom Analyst at Motilal Oswal Securities, said: “I am not very sure whether the headline tariffs would go up. However, the yields, revenues per minute, would rise gradually on withdrawal of schemes like free minutes and promotional and discounted tariffs.”

(This article was published on November 16, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.