With competition losing intensity, the Big 3 of the telecom industry are less wary of hiking call rates.
If anyone had asked Bharti Airtel’s Chief Executive Officer Sanjay Kapoor about mobile tariffs a year ago, he would have compared it to samosas. His grouse was that while a samosa costs 40 paise and a mobile phone call Rs 8 a minute a decade ago, now, a samosa costs Rs 8 and a mobile call 40 paise a minute. Over the last quarter, Kapoor and chiefs of other mobile large companies, including Idea Cellular and Reliance Communications, have begun to narrow this gap.
Last week, Bharti Airtel and Idea Cellular announced that they were cutting down on freebies, discounts and pre-paid card validity period. Mobile users will end up paying 20-30 per cent more following the withdrawal of these discounts. Before that, Reliance Communications hiked voice call tariffs from 1.2 paise a second to 1.5 paise. Not only are more such hikes in the offing, telecom companies are also fighting against any regulatory intervention to reduce tariffs. Recently, mobile companies have threatened to stop offering roaming services if they are forced by the Government to waive roaming charges.
Hiking call tariffs
Clearly, the party for telecom consumers, who were enjoying the world’s lowest tariffs for the past several years, is over. But unlike in the past, when mobile companies would think many times before even talking about a tariff hike, telecom players now feel more emboldened into increasing call tariffs. There are multiple reasons for this new-found courage, but the most important is that the intensity of competition has drastically come down in the last one year.
Back in 2003, the mobile companies which were controlling the market when tariffs were at Rs 8 a minute, had lost the initiative when CDMA players entered the market with rock-bottom pricing. Until then, there were only four cellular operators in each circle. The entry of CDMA players brought down the tariff to less than Rs 2 a minute, which forced the incumbent players to drop their tariffs.
The spiralling down got a further boost in 2008 after the new 2G operators — now known as the scam-tainted Raja’s licencees — launched services riding on aggressive pricing tactics; changing the entire metering system from minute-based mechanism to one which offered users the ability to pay on a per second basis. Players like Uninor also launched a dynamic tariff scheme, which allowed subscribers to get differential pricing, depending on the location and traffic load of the network.
But after it was discovered that the Government had followed a flawed first-come-first-served policy to allocate licences, the Supreme Court cancelled all the licences issued in 2008, pushing as many as five players out of the market. Bharti Airtel, Idea Cellular and Vodafone have a combined market share of over 50 per cent. Most other players today find themselves in a position where they are unable to move the market by creating a differentiation.
Mobile Number Portability
Therefore, telecom consumers today do not have many options if the top three players increase tariffs or decline to waive roaming charges. Unlike in the airlines industry where passengers do not hesitate to switch airlines each time they travel, it is a lot harder to do so with telecom service providers.
Theoretically, there are no exit barriers for a telecom consumer, and with the introduction of Mobile Number Portability subscribers can move to another operator, if unhappy with the existing service provider.
However in reality, the churn rate — the percentage of users leaving the network — for top mobile operators has been decreasing. Idea Cellular, for example, has reported a churn rate of 6.9 per cent for the third quarter of 2012-13 compared to 10.4 per cent a year ago.
Mobile Number Portability has also failed to fire up competition in the market and, hence, not many subscribers have shifted operators. As on October 2012, only 75.14 million subscribers of the total 890 million user base had requested to port out to another operator. In most countries where MNP has been introduced, it is the new players which have gained, as they lure subscribers with attractive schemes. In India, Idea Cellular and Vodafone are the biggest gainers, which is a clear indication that subscribers do not see a better option than the top three players.
Redress system skewed
There have also been complaints about operators not implementing the number porting system properly. As many as 20 million subscribers have been refused porting till date by operators for some reason or the other.
That’s because the consumer complaint redressal system is skewed in favour of the telecom companies. The telecom regulator has set up a two-tier complaint redress mechanism, comprising the call centre at the first level and an appellate authority at the next.
The problem is that TRAI has allowed operators to set up the entire system. In other major telecom markets, there are independent agencies to deal with telecom consumer complaints. For example, the telecom ombudsman in the UK — known as the Otelo — has been operating since January 2003. TRAI itself had suggested setting up such an agency way back in 2004, but this never got implemented because the Department of Telecom thought it wasn't feasible. Perhaps, it is time now to revisit that proposal.
Lowering entry barriers
In addition, the policy makers should also look at ways to increase the level of competition in the sector by lowering the entry barriers for new players. Fixing a lower reserve price for spectrum auction is certainly one way of attracting new investors.
The recently-concluded auctions failed to attract new players because of the high reserve price of Rs 14,500 crore for 5 MHz of Pan-India spectrum. This should be reduced by at least 50 per cent to make it viable for any prospective investor. Simultaneously, operators should be allowed unrestricted spectrum trading and sharing. This will enable operators which do not have airwaves in a particular circle to enter the market by renting spectrum.
To be fair to the incumbent players, the propensity to increase tariffs has gained momentum also due to declining revenues, combined with the burden of fresh Government levies. The Government should scrap unnecessary charges, including the one-time fee for excess spectrum beyond 4.4 MHz.
The incumbent players have to pay Rs 20,000 crore as one-time fee and the only way they can compensate the outgo is to increase tariffs for voice calls. The Government should also help the operators to grow new revenue stream for data services. This can be made possible by making available more spectrum that is suitable for data services.
Mobile users in India at present consume only about 200 MB of data on an average compared to 2 GB in the developed countries. Indian telcos should be able to offer that kind of bandwidth and grow their revenues, but for that, they need access to more spectrum in international harmonised bands such as the 2100 MHz.
While the Government is looking to auction spectrum in bands including 900 MHz and 700 MHz, the 2100 MHz band has the best ecosystem globally when it comes to cheaper devices. This is important because telecom consumers in this country need a better deal than having to pay for phone calls the same price as for a samosa.