Vodafone hikes call tariff in Mumbai: Will other mobile operators follow suit?
Moneylife Digital Team 02 May 2012

With uncertainty (still) looming in the telecom industry, mobile operators are trying to increase tariffs in selective circles. In such scenario, the least they can do is to keep their loyal subscribers informed, which Vodafone has failed to do

Vodafone India has increased call rates by 20% in the Mumbai circle for its post-paid subscribers. Although, the company claims to have sent out SMS to its subscribers, not everyone has received the message for increasing call tariff to 1.2 paisa per second from 1 paisa per second. This also means that post-paid subscribers of Vodafone would have to shell out extra 12 paise for every minute they call from their cell.

Although the hike was not completely unexpected, the way Vodafone has done it for a selective circle and for selected subscribers (post-paid), signals something else. Most surprisingly, the company have not even bothered to inform the hike to many of its subscribers who provide it the highest revenues per minute (RPM).

Last year in July, several mobile operators, including Bharti Airtel, Ideal Cellular and Aircel increased call tariffs in selected circles. At that time, all operators were focussed on improving average revenues per minute (ARPM) over subscriber acquisition or increasing market share.

“After two consecutive quarters of increase in wireless RPM since the tariff hikes undertaken in July-August 2011, we expect RPM to remain flat QoQ (quarter on quarter) due to relatively higher competitive activity from market leader Bharti (to protect declining volume/revenue market share) and new entrants like Uninor to prevent subscriber migration post license cancellation order by the Supreme Court,” said Motilal Oswal Securities in a research note.

But this scenario changed after the Supreme Court’s decision in February 2012 that cancelled 122 licences across the country. New entrant Uninor, a joint venture between Norwegian Telenor and Indian Unitech, suffered the most from the apex court’s decision as its all licences were cancelled. However, to everyone’s surprise instead of bowing out, Uninor decided to take its fight to the street and started selling more and more SIM cards through a very aggressive approach. It not only is offering extra talk time on mobile recharge (most of Uninor's subscribers are in pre-paid category, where the churning rate is very high and is based on cheapest call rates) and also free talk-time on Uninor to Uninor calls.

During March 2012, market leader Bharti Airtel added 25 lakh new subscribers, up 37.3% from February, taking its total subscriber base to 18.1 crore. This was due to aggressive marketing campaigns from the operator, which bore fruit in circles like UP (east), Bihar, Rajasthan, Andhra Pradesh and Maharashtra. This was followed by Idea, as well. However, for Vodafone and state-run Bharat Sanchar Nigam (BSNL), the new subscriber addition remained subdued at 10 lakh and 9 lakh subscribers, respectively.

Post the Supreme Court decision, subscribers are shifting toward more reliable mobile operators, who will not shut shop midway. Secondly, the Telecom Regulatory Authority of India (TRAI) has recommended significantly high reserve price for the upcoming auction of 2G spectrum and also re-farming of 900Mhz spectrum band to the 1800Mhz band. Both the recommendation would lead to significant cash outflow for incumbent operators.

The Indian telecom sector is currently experiencing heat due to a number of policy uncertainties related to spectrum and license fee payments. Also, the rupee has depreciated by about 9% to 11% against the US dollar in the past seven months, which has increased the liabilities of telecom companies such as Bharti and Reliance Communication in rupee terms due to huge forex debt in their books.
 
The cash strapped Union government is looking to raise a significant amount from the telecom industry and it has pegged the total spectrum value at Rs7 lakh crore to be auctioned over the period of three years. This clearly indicates the government’s intention to keep spectrum prices at a higher level. If the prices are kept high, it would lead to increase in tariffs as witnessed in the case of 3G. Despite the slower uptick in 3G services, operators are not cutting tariffs due to huge amount of investment made in the form of spectrum fees. 

Therefore the driving force for the overall sector is higher tariffs as well as increasing use of value-added services, which will lead to higher ARPUs for all players, thereby aiding profitability. Vodafone has just taken the lead for increasing call tariffs in its most profitable circle and there are signs that it would be soon followed by others.

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