Mobile tariff war to hit revenues

With the entry of mobile operator Uninor in Dec 2009  into India's crowded mobile market, the competition takes a new turn in an already heated market. Uninor launched their operation with an unprecedented 29 paise per minute for local calls and 49 paise per minute for STD calls. Uninor is a collaboration of Unitech wireless and Telenor Norway in which Telenor holds 67.25% stake. 

The tariff war by new telecom entrants in India and the likely retaliation by incumbent operators, will have a significant impact on industry revenues and profitability. The reduced tariffs will lower the average revenue per user (ARPUs) and operating margins for all industry players. The latest figures indicate average revenue per user (ARPU) remains below Rs 200. Keep in mind that this is a significant decline comparing to figures early in 2005 when the operators enjoyed an arpu of Rs 400. Despite the significant drop in arpu, operators still enjoy a margin due to continuous addition of new subscribers. 

As per rating agency Fitch, the Indian telecom industry is witnessing price wars with the entry of the new telecom operators, which were allotted universal access service licenses (UASLs) in February 2008 by the Department of Telecommunication (DOT). The new entrants (Aircel, Sistema Shyam Teleservices Ltd (SSTL) and Tata Docomo (GSM)) have launched aggressive tariff plans in an effort to garner subscriber market share. These new entrants have launched per second billing, either selectively or throughout their networks forcing incumbent operators to follow suit, while Tata CDMA has launched tariffs on a per call basis, irrespective of duration (Re 1 and Re 3 per call on local and STD, respectively). Following this trend, Reliance communication has reduced the tariff to 50 paise per minute for local, STD, roaming and SMS, for both off-net and on-net calls.

However, Fitch expects new entrants to face increasing difficulties in garnering any meaningful market share, with already low tariffs leading to lower ARPUs, a lack of adequate spectrum quality and restrictions on spectrum sharing. Fitch believes that the reduced industry profitability will likely expedite industry consolidation in the medium to long term reducing the number of players in the market.

As of end Oct 2009, mobile subscriber base in India stood at 482 million with Airtel leading the pack with 23.45% market share.

Here is how the picture looks like in terms of market share as of 31 Oct 2009.

Rajesh Kumar