The recent tariff hike is a bold attempt on the part of leading telecom operators to nudge the industry to a more mature phase and shift the focus to revenue and profitability instead of merely adding subscriber numbers
With such compressed margins, incumbents have no option left except to go for an increase in tariffs in order to arrest and limit the decline in profits. And as subscription to services has been increasing sequentially for all companies even as spectrum licences remain capped, the only choice left has been to play the tariff card. Wireless subscriber base increased from 840.28 million in May 2011 to 851.70 million at the end of June 2011, registering a growth of 1.36%. However, subscribers’ growth in June and in the preceding three months has been among the lowest in the past many years and confirms industry’s suspicions that the relentless fall in tariffs kickstarted by new operators since 2009 in order to acquire new subscribers has finally bottomed out. “India is no longer just a new market for telecom where subscriber acquisition is the key. Tariffs have already reached a stage when there is no elasticity left, so no matter how much lower they go, you aren’t going to see an incremental rise in customer volumes,” says a telecom analyst.
Till recently, the key performance indicator for telecom firms was to bring in new subscribers, both to be competitive and get additional spectrum (given the government’s earlier subscriber-linked formula for spectrum). But with changes in spectrum policy, that is not so crucial. The likely auction of spectrum in future, as proposed by the new telecom policy, and likely to be announced within the next three months, will remove the perverse incentive to add customers at any cost. Already, new subscribers rarely add to firms’ revenues. This is because over 90% of India’s subscribers are in the pre-paid segment, which mostly has low-volume, low-revenue users. The ARPU in this segment is abysmally low at around Rs 125 a month, according to industry estimates.
Will operators scale up their tariff hikes to a pan India level, including many other circles in the near future? Not at least for the next two to three months, say industry experts. “Only after seeing the results in certain circles where some operators have done the hike, I am sure they would measure the response for a couple of months and only then move on to either reduce it or effect similar hikes in other circles,” says the head honcho of a leading telecom firm, which has not raised its tariff so far. Most experts opine that the Indian telecom market is not quite there yet where operators have such pricing power as to be able to raise tariffs without losing customers. A large number of operators still have underutilised assets and they would rather use their assets at whatever pricing they can get rather than let it be idle without generating any revenue whatsoever. New players are in the process of acquiring a critical mass of subscribers and cannot risk losing them by increasing tariffs. Officials from new telecom firms are admitting that they view these tariff hikes as phenomenal opportunities to grab customers. To cash in, new companies like MTS and Uninor have already gone aggressive with their advertising campaigns of late.
Till recently, the key performance indicator for telecom firms was to bring in new subscribers, both to be competitive and get additional spectrum (given the government’s earlier subscriber-linked formula for spectrum). But with changes in spectrum policy, that is not so crucial. The likely auction of spectrum in future, as proposed by the new telecom policy, and likely to be announced within the next three months, will remove the perverse incentive to add customers at any cost. Already, new subscribers rarely add to firms’ revenues. This is because over 90% of India’s subscribers are in the pre-paid segment, which mostly has low-volume, low-revenue users. The ARPU in this segment is abysmally low at around Rs 125 a month, according to industry estimates.
Will operators scale up their tariff hikes to a pan India level, including many other circles in the near future? Not at least for the next two to three months, say industry experts. “Only after seeing the results in certain circles where some operators have done the hike, I am sure they would measure the response for a couple of months and only then move on to either reduce it or effect similar hikes in other circles,” says the head honcho of a leading telecom firm, which has not raised its tariff so far. Most experts opine that the Indian telecom market is not quite there yet where operators have such pricing power as to be able to raise tariffs without losing customers. A large number of operators still have underutilised assets and they would rather use their assets at whatever pricing they can get rather than let it be idle without generating any revenue whatsoever. New players are in the process of acquiring a critical mass of subscribers and cannot risk losing them by increasing tariffs. Officials from new telecom firms are admitting that they view these tariff hikes as phenomenal opportunities to grab customers. To cash in, new companies like MTS and Uninor have already gone aggressive with their advertising campaigns of late.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
