A day after it was reported that telcos were seeking a cap on the number of operators in the Indian telecom sector, without any intention to reduce tariffs, studies have shown that mobile tariffs in India are rather set to rise steeply by at least 17 percent.
Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications have all increased their prepaid tariffs for voice and SMS by 20 percent since last month, while Tata DOCOMO, which was the first to start the trend, hiked its tariffs by a whopping 67 percent. Claiming inability to sustain business profitability, other telecom players in the market are likely to increase tariffs by another 17 percent at least. Smaller players, including greenfield operators, who were earlier reported as unlikely to raise tariffs in order to maintain subscriber stickiness, may now also follow suit, in what is being heralded as a complete reversal from the 2008 M&A regime, that encouraged more players to set up shop in the telecom market for healthier competition and cheaper tariffs.
While the government in 2008, had provided licenses to 7 additional players, apart from the existing 7 operators at the time, with the aim of lowering tariffs – which could prove beneficial for the operators, subscribers and the government, this premise has indeed turned out non-beneficial to any of the three parties, with the exception of the first one year.
According to a report by COAI, the ‘no cap’ policy regime which aimed to encourage competition led to a fall in tariffs for both voice and data, with the reductions in call charges not even being matched by an increase in minutes of usage per connection per month. Thus, contrary to the government’s ideal, minutes of usage have fallen drastically from 465 minutes/month in 2007 to 369 minutes in 2010, a decline of over 20 percent.
COAI believes this threatens the sustainability of the industry, which has already experienced a slowdown in infrastructure investment in the past few years, presenting a bleak growth outlook to the government on the anvil of National Telecom Policy 2011, as well as for drawing up of the 12th Five Year Plan.
While operators have in India have been struggling for long to sustain their overhead costs, with increased pressure being laid on account of diminishing profit margins, subscriber usage has also not risen in accordance with the number of players. While this may be due to a marked divide in providing telecom services to urban and rural users, which is still in the ratio of 60:40, favouring urban India, another reason may be that VAS alone cannot sustain an operator’s margins.
The entry of new players, with increasingly discounted voice and data tariffs, further led to an eroding of established players’ margins, with many subscribers – especially the youth, which make up at least 60 percent of the mobile subscriber base, going in for cheaper and newer services. With the introduction of MNP earlier this year, operators had no choice but to raise tariffs, with the top players seeing a huge exodus in their subscriber base to other networks. All this coupled with the high cost of rolling out 3G, which still does not have even 10 million users in the country, out of a total of 860 million wireless subscribers, despite being in operation for nine months now, was the final straw to operators to take strong action.
It has been proven that a large number of operators in a single country is not necessary for providing cheap and good quality services. All other emerging nations like South Africa – which has 2 main operators, China – which has 3 main operators, Brazil – which has 4 operators, Pakistan – which has 5 operators, and Bangladesh – which has 6 operators, have seen fair play and steady introduction of new services in their respective markets, at discounted prices that do not hurt the operator profit margins.
However, in a country like India, which already has five times the number of cellular operators as any other nation, will merely putting a cap on the number of new players and increasing wireless tariffs be the solution to the telecom sector’s woes?
Limiting the number of players entering the market, may lead to a drop in FDI in this sector, which is not practical. Making existing players that have fairly paid for licensed spectrum and rolled out services even, wind up and exit the country, due to inconsistent performance, is also not an option. While the latter have subscribers that will suffer in the event of such a declaration, it is also unfair to disallow greenfield operators the chance to compete with established players, even if it takes time. Besides, allowing only established players to operate will lead to a monopolistic attitude among them, which will not benefit the subscriber at all, and lead to a further increase in tariffs, or a drop in quality of services.
Stringent checking of service rollout obligations by all operators, checking for spectrum hoarding, checking of VLR numbers and inflated reporting, giving out licenses and spectrum by auction method, separating license from spectrum, pooling of spectrum, and passive and active infrastructure sharing, may all be better solutions to help the Indian telecom sector become more profitable. Adequate punitive measures – not short off withdrawing spectrum and licenses altogether from errant players, will also help make the sector more responsible.
India is known for having a unique market, which has the most operators, as well as the second highest number of wireless subscribers, after China. If adequate measures are taken, we can still ensure profitable free and fair play by all.
By Beryl M
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