Cell Tariffs: Don’t Miss The Talk-time Story !

[Arun 795]

Tumbling cellular tariffs have not only woken up the ‘aam aadmi’ (common man) but have also redrawn the over 20-million pre-paid subscriber landscape. After a year of fragile peace on the tariff front, Reliance Infocomm’s (RIM) recent drive in the pre-paid cellular market actually resulted in its rates falling by just 4 per cent (as per cost to customer) in the popular denomination pack of Rs 324. That has forced rival operators to slash price between 9 per cent and 20 per cent(see chart).

But the real impact stems from Reliance’s decision to slash tariff by 47 per cent for RIM to RIM. The initiative allows Reliance’s over 2 million pre-paid customers to access the company’s eco-system of over 8 million subscribers for just Re 0.99 per minute.

Bharti has proposed to confront the Reliance move, by nurturing its own family of over 8 million with a similar tariff (60 per cent cut)— and in the process, has broken ranks with its GSM cousins.

In the re-drawn landscape, for the first time, operators are not discriminating between GSM and CDMA networks — earlier GSM operators maintained a higher tariff for accessing WLL and fixed line. Moreover, Hutch and Idea, with relatively small customer bases, have so far maintained a flat rate for accessing all operators.

Pre-paid segment accounts for around a quarter of Reliance’s 8 million subscriber base, two-third of Airtel’s 8 million base, and three-fourth of Idea’s 4 million base.

Since unified regime came into force, a debate has been raging whether wireless operators should be allowed to offer lower tariff to customers within their own network. Consumer activists have been maintaining that any move that benefits customers should not be checked by regulation — even if such discriminatory tariffs hurt the interests of cellular networks with relatively small customer base.

Interestingly, even after the current bout of price cuts, pre-paid tariffs are significantly higher than MTNL’s Trump (see chart).

The tariff-brawl is likely to get intensified with Reliance accelerating migration of its post-paid customers to pre-paid and embracing huge write-offs on defaulting customers.

Pre-paid, despite its bias for low-end customers, is critical for most operators as it offers liquidity versus higher-risk of defaults in post-paid segment.

The recent price-revision also sees the industry aligning their talk-time value to the Rs 150 platform for the Rs 324-pack. Looking ahead, it would be interesting to see if the recent cuts are more short-termed and tactical in nature. It may be noticed that pricing can be altered not just by tweaking price per minute but also by altering talk-time value — during intense competition, customers can expect as much as cent per cent talk-time value.

Cellular Operators Association of India (COAI) director general TV Ramachandran sees the battle as far beyond pure marketing play.

“In the current situation there is just no basis for the continuance of Access Deficit Charge (ADC).

Cellular operators cannot recover ADC from their consumers in the present cost structure where carriage charge is Rs 1.10, termination charge is Rs 0.30 and ADC is Re 0.80 per minute,” said Mr Ramachandran.

“Large integrated players have made the move, but it does not look sustainable. It is obvious from the fact that if BSNL can undercut cellular operators to such an extent, BSNL does not need ADC from us,” Mr Ramachandran maintained.