How much Mobile Call Tariff Hike Required to Offset Regulatory burden in India ?


Mobile Tariff Hike in IndiaTelecommunications Industry by design is a capital intensive business and with rising Spectrum Prices, the CAPEX is still higher. World over the Telecom industry operates in Lobby or in an oligarchic setup and is no different in India. One thing is certain, everybody from the GSM incumbents to potential entrants like Reliance Infotel are using every means to manipulate Telecom Policy. But with 2G Spectrum Scam in the public domain, any large scale manipulation is ruled out as it will lead to series of Court Room Battles.

The need to increase Mobile Call Tariffs gets stronger as the due date for remitting additional spectrum charge nears. One can expect a sustained and calibrated, tariff hikes. The key questions are how much and when? On the when part, we believe hikes would be calibrated – a modest start in the form of reduced discounts on STVs, hikes in 2G data rates and SMS tariffs has already been made. The question of how much boils down to the following three factors,

Competition Response Couple of Players in the sector are still operating at below average network utilization, the temptation to build a strategy around volume market share gains is natural and competing on price is the most likely way a new operator executes the strategy. However, this time challenger is expected to be more disciplined as they face regulatory burden as well and more important, challengers need a price hike even without considering the regulatory burden to stay cash-flow positive.

Customer Response Mobile Operators would tread with a little caution on this front and thus the expectation of a gradual / calibrated price hike instead of a large one-time hike. At higher RPM levels the elasticity maybe a drag.

Will regulator Intervene ? With Airtel, Vodafone and Idea acting on price rise in coherence, one cannot rule out intervention by TRAI / DoT / Competition Commission of India. Government may try to keep TRAI / DoT at bay as BSNL / MTNL will have room to hike prices as well but will citizens like Dr Subramanyam Swamy watch the game silently ?

So How Much Tariff Hike will Help Operators Offset Regulatory Burden ?
Different operators will need different levels of price / RPM hikes to mitigate the regulatory burden – this is a function of quantum and timing of impact, current scale of minutes and cost of production. It is impossible to figure out exactly as we have aggressive Challengers in some circles and in the remaining circles the operator may not be in the pole position. However, a hike of anywhere between Rs 0.08 to Rs 0.15 / Minute will facilitate Airtel, Vodafone and Idea to stay afloat without taking further hit on the balance Sheet. Beleaguered Telco, Reliance Communications with below industry Average ARPU needs higher hike of Rs 0.15 to Rs 0.20 / Minute which is highly unlikely to happen.

What about the new upcoming challenge coming from the coterie of Mukesh Ambani – Reliance Infotel, Videocon, etc ?