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The era of cheap calls may be over
The notice from the department of telecom, inviting applications from telecom companies for 2G licences, is out. The ball has been set rolling for the auction process for 2G mobile telecom services.
The era of cheap telephone calls, after nearly a decade of falling tariff, may be over. The era of telcos' mad rush for acquiring customers may also be over.
Reliance Communication has quietly raised tariff for prepaid mobile services, which account for over 80 per cent of operator revenues, by 25 per cent. Bharti Airtel, India's largest mobile services company, had raised tariff for landline and broadband users last week.
The move could trigger a similar move by other companies too. Bharti Airtel and Vodafone have a subscriber base of around 150 million subscribers each.
"If a relatively smaller player can raise tariff sharply, I would like to believe that we have better pricing power," a senior official from one of the two companies said.
Telcos are now changing strategy. Earlier, spectrum allocation was made on the basis of the number of subscribers. It made sense for telcos to offer deals like a lifetime free connection and other similar offers.
For the first time in nearly 10 years, the subscriber figures for the top telcos fell last month, because now companies don't want the marginal customers to be on their network.
Spectrum is now allotted in blocks of 5 MHz, according to TRAI regulations. Telcos will have to pay a base price of Rs. 14,000 crore ($2.59 billion) for a pan India spectrum. So, the number of subscribers for a telco has become irrelevant as far as getting spectrum is concerned. A similar pan India spectrum had cost telcos Rs. 1,651 crore (approximately $301 million) as recently as 2008, when telecom licences were given out by the department of telecom.
The 10-fold jump in cost is clearly going to hurt telcos and they would want to pass on that cost to the subscribers.
Telcos that had been granted licences in 2008 are carrying on with a Supreme Court mandated lifeline. Among them, only Sistema and Uninor are expected to make a strong pitch during the auction, while Estel, Etisalat and Loop are not expected to bid for spectrum. Reliance Industries could be the surprise entrant into the business. Idea Cellular could face the cancellation of some more of its licences as the regulatory issues related to the matter are being sorted out.
The timing of the tariff hike is also significant. With the increase, the incumbent telcos have raised the bar for the companies that are preparing to bid for spectrum, the process for which begins on November 12.
With lesser number of telcos, subscribers will have little option but to pay higher.
The margins that telecom companies have enjoyed during the peak years have also shrunk after the hyper competition that resulted after the additional licences were awarded in 2008. Bharti Airtel has reported 11 consecutive quarters of falling profit while Reliance Communications has accumulated a debt of over Rs. 37,000 crore.
The notice from the department of telecom, inviting applications from telecom companies for 2G licences, is out. The ball has been set rolling for the auction process for 2G mobile telecom services.
The era of cheap telephone calls, after nearly a decade of falling tariff, may be over. The era of telcos' mad rush for acquiring customers may also be over.
Reliance Communication has quietly raised tariff for prepaid mobile services, which account for over 80 per cent of operator revenues, by 25 per cent. Bharti Airtel, India's largest mobile services company, had raised tariff for landline and broadband users last week.
The move could trigger a similar move by other companies too. Bharti Airtel and Vodafone have a subscriber base of around 150 million subscribers each.
"If a relatively smaller player can raise tariff sharply, I would like to believe that we have better pricing power," a senior official from one of the two companies said.
Telcos are now changing strategy. Earlier, spectrum allocation was made on the basis of the number of subscribers. It made sense for telcos to offer deals like a lifetime free connection and other similar offers.
For the first time in nearly 10 years, the subscriber figures for the top telcos fell last month, because now companies don't want the marginal customers to be on their network.
Spectrum is now allotted in blocks of 5 MHz, according to TRAI regulations. Telcos will have to pay a base price of Rs. 14,000 crore ($2.59 billion) for a pan India spectrum. So, the number of subscribers for a telco has become irrelevant as far as getting spectrum is concerned. A similar pan India spectrum had cost telcos Rs. 1,651 crore (approximately $301 million) as recently as 2008, when telecom licences were given out by the department of telecom.
The 10-fold jump in cost is clearly going to hurt telcos and they would want to pass on that cost to the subscribers.
Telcos that had been granted licences in 2008 are carrying on with a Supreme Court mandated lifeline. Among them, only Sistema and Uninor are expected to make a strong pitch during the auction, while Estel, Etisalat and Loop are not expected to bid for spectrum. Reliance Industries could be the surprise entrant into the business. Idea Cellular could face the cancellation of some more of its licences as the regulatory issues related to the matter are being sorted out.
The timing of the tariff hike is also significant. With the increase, the incumbent telcos have raised the bar for the companies that are preparing to bid for spectrum, the process for which begins on November 12.
With lesser number of telcos, subscribers will have little option but to pay higher.
The margins that telecom companies have enjoyed during the peak years have also shrunk after the hyper competition that resulted after the additional licences were awarded in 2008. Bharti Airtel has reported 11 consecutive quarters of falling profit while Reliance Communications has accumulated a debt of over Rs. 37,000 crore.
