The Indian model is low-cost high-volume and since more than 40% of the populace still does not have access to phones, the model works well for the operators. This perfect script got soiled around a year ago, when in the fight to garner more subscribers, the race to the bottom in terms of tariff gathered full steam, leaving holes in everyone’s pockets. The ARPUs were always falling but for the first time the MOU also started declining. This meant that people were taking phone connections as the monthly subscriber addition continued to be around 15-20 million but were not talking enough to make up for the low tariffs, which could only be compensated with average talk-time increasing. The result was that first operators like Bharti Airtel, which were recording high double-digit growth, fell to low single digits and then the decline began.
The first signs of stability returning to the market were visible in the January-March quarter of the last fiscal when the zest to reduce tariffs slowed down, and the quarter just gone by only saw the trend strengthening. The other positive trend to have emerged is the focus of the operators on revenue generating customers and the slow cleaning up of the free minute consumers. Bharti, for instance, posted a growth of 1% in MOU on a yearly basis and 3% on a sequential basis. In the fourth quarter of the last fiscal, the same declined 4% on a yearly basis but had grown 5% on a sequential basis. So if the company’s CEO (India & South Asia), Sanjay Kapoor, maintains that the era of ‘irrational pricing’ is over, there’s some basis to the statement. The shift away from what Kapoor calls irrational pricing is quite evident as RComm in the past quarter reduced free minutes and focused on increasing paid minutes. The reduction in free minutes has been to the extent of almost 50%, bringing in the rate per minute in line with the industry. This is significant since RComm’s rate per minute three quarters back used to be 8-10 paisa per minute lower than other operators. This brings out that the focus has shifted from throwing away minutes to garner subscribers to mainly concentrate on revenue generating customers. If the trend stabilises, the average talk-time will again start showing an increase, thus restoring the balance that is so crucial in the low-cost high-volume model.
But there is still some time before the ideal gets restored. None of the telcos give a revenue guidance but Kapoor maintains that the first and second quarters generally remain weak, and it is the third and fourth quarters that show growth. If the cycle repeats, then the operators will have a wholesome story to tell by the end of the financial year. There would be another reason to add to the growth story in the latter part of the year—the first beginnings of 3G services. Both Bharti and RComm are confident of beginning the 3G services by the end of the calendar year, once the government allocates spectrum next month. Obviously, 3G in its initial days would see better ARPUs and MOUs than 2G.
The optimism of the incumbent operators’ that there would be no more bloodbath in terms of tariffs is also born out of hard economic reality. All the major operators have spent huge amounts bidding for 3G spectrum and are in no position to lose money any more. Whatever irrational tariffs are coming or may come would be from the newer operators, but considering their size and scale of operations, it would not make any substantial impact on the market.
The other threat potential of RIL’s return to the sector through the wireless broadband route is also overstated. A lot has changed in the telecom landscape since the company’s big entry in end-2002. It will be still quite sometime before RIL starts operations and this time its approach would likely be collaborative rather than disruptive, unlike the last time.
rishi.raj@expressindia.com
The first signs of stability returning to the market were visible in the January-March quarter of the last fiscal when the zest to reduce tariffs slowed down, and the quarter just gone by only saw the trend strengthening. The other positive trend to have emerged is the focus of the operators on revenue generating customers and the slow cleaning up of the free minute consumers. Bharti, for instance, posted a growth of 1% in MOU on a yearly basis and 3% on a sequential basis. In the fourth quarter of the last fiscal, the same declined 4% on a yearly basis but had grown 5% on a sequential basis. So if the company’s CEO (India & South Asia), Sanjay Kapoor, maintains that the era of ‘irrational pricing’ is over, there’s some basis to the statement. The shift away from what Kapoor calls irrational pricing is quite evident as RComm in the past quarter reduced free minutes and focused on increasing paid minutes. The reduction in free minutes has been to the extent of almost 50%, bringing in the rate per minute in line with the industry. This is significant since RComm’s rate per minute three quarters back used to be 8-10 paisa per minute lower than other operators. This brings out that the focus has shifted from throwing away minutes to garner subscribers to mainly concentrate on revenue generating customers. If the trend stabilises, the average talk-time will again start showing an increase, thus restoring the balance that is so crucial in the low-cost high-volume model.
But there is still some time before the ideal gets restored. None of the telcos give a revenue guidance but Kapoor maintains that the first and second quarters generally remain weak, and it is the third and fourth quarters that show growth. If the cycle repeats, then the operators will have a wholesome story to tell by the end of the financial year. There would be another reason to add to the growth story in the latter part of the year—the first beginnings of 3G services. Both Bharti and RComm are confident of beginning the 3G services by the end of the calendar year, once the government allocates spectrum next month. Obviously, 3G in its initial days would see better ARPUs and MOUs than 2G.
The optimism of the incumbent operators’ that there would be no more bloodbath in terms of tariffs is also born out of hard economic reality. All the major operators have spent huge amounts bidding for 3G spectrum and are in no position to lose money any more. Whatever irrational tariffs are coming or may come would be from the newer operators, but considering their size and scale of operations, it would not make any substantial impact on the market.
The other threat potential of RIL’s return to the sector through the wireless broadband route is also overstated. A lot has changed in the telecom landscape since the company’s big entry in end-2002. It will be still quite sometime before RIL starts operations and this time its approach would likely be collaborative rather than disruptive, unlike the last time.
rishi.raj@expressindia.com
Posts
