The year 2013 witnessed multiple rounds of tariff revisions for both voice and data services, with operators aiming for higher data service uptake and improved bottom lines. While operators continued to reduce data tariffs to ensure high service uptake, they raised local voice tariffs to increase revenues. Apart from headline tariff hikes, operators withdrew promotional offers such as free minutes, and reduced discounts. They also revised roaming and SMS charges in accordance with the regulations issued by the Telecom Regulatory Authority of India (TRAI).

Voice tariff hike

For most of 2012, voice tariffs remained unchanged as operators were apprehensive of losing customers to competitors if they were the only service provider to increase call rates. This was primarily because prior to mid-2012, the operator business model focused on acquiring the maximum number of subscribers to improve market share and, therefore, there was little scope to hike tariffs.

However, declining profitability and competitiveness caused a sudden change in the operators’ stance on voice tariffs. The growing debt burden, a significant rise in opex and lower-than-expected 3G service uptake, among other factors, had been affecting operators’ bottom lines. In the two years ended March 2012, most operators had reported declining revenue growth due to stagnation in the voice segment as well as very low tariffs. Meanwhile, the cost of providing telecom services had risen significantly owing to higher customer acquisition costs, increasing energy expenses and high interest costs. As a result, the profit margin of most companies fell sharply. For instance, Bharti Airtel’s net profits decreased from Rs 89.76 billion in 2009-10 to Rs 42.59 billion in 2011-12. Similarly, Reliance Communications’ (RCOM) bottom line declined from Rs 46.55 billion to Rs 13.45 billion during this period.

Declining revenues from SMS as well as international voice services also compelled operators to reconsider their previous position on tariffs. Meanwhile, proliferation of smartphones as well as availability of 3G networks led to growing adoption of over-the-top applications such as WhatsApp, Skype and Nimbuzz. Greater use of these applications resulted in a major fall in the usage of SMS and international voice services. In order to minimise the impact of this on overall revenues, operators were left with little option but to raise their tariffs and reduce discounts and promotional offers.

Also, competitive pressures on the industry eased following the cancellation of 2G licences of several operators. New entrants that continued operations also consolidated their position. As a result, operators had more headroom for raising tariffs as compared to the previous two years.

Despite these developments, most operators took a cautious approach with regard to revision of voice tariffs initially. For instance, in January 2013, Bharti Airtel and Idea Cellular reduced free minutes and withdrew promotional offers on voice services, instead of increasing headline tariffs. However, RCOM took a bold step in raising voice tariffs in May 2013. The operator increased tariffs by 20-30 per cent for its prepaid GSM customers that were using Commitment Plan 21 and Commitment Plan 45. In the same month, RCOM hiked voice tariffs by about 33 per cent for all prepaid GSM and CDMA customers.

Following this, Bharti Airtel increased voice tariffs by 20-50 per cent for post-paid customers in September 2013. But the hike was limited to subscribers using the Advantage 199 plan. Thus, it is evident that most operators are taking a wait-and-watch approach before increasing headline tariffs.

Data tariffs plunge

In contrast to voice rates, data tariffs have been declining as operators continue to drive greater adoption. However, unlike 2012, the year 2013 did not witness a tariff war in the 3G segment. Instead, operators revised 2G data tariffs several times.

In January 2013, both Bharti Airtel and Vodafone India hiked 2G data tariffs by up to 30 per cent. This was mainly undertaken to cash in on the increasing usage of 2G data services. However, in a surprising move, Vodafone India slashed 2G data tariffs by up to 80 per cent in the Karnataka, Uttar Pradesh (West) and Madhya Pradesh circles in May 2013. Idea Cellular and Bharti Airtel followed suit. While Airtel reduced tariffs by up to 90 per cent in Punjab and Haryana, Idea Cellular slashed 2G data rates by 80 per cent in Tamil Nadu, Karnataka, Kolkata, West Bengal, Assam, the Northeast, Bihar and Odisha.

An interesting observation from the tariff revision in May 2013 is that all operators had reduced 2G data rates in circles where they do not hold 3G spectrum. This was a direct consequence of the Supreme Court’s verdict on 3G intra-circle roaming agreements in April 2013. Under these agreements, operators use others’ spectrum to provide 3G services in circles for which they did not hold licences. The apex court had asked operators to not add new 3G subscribers in circles where they do not hold licences. However, it had allowed service providers to continue to serve existing subscribers in these circles. Since operators were not allowed to offer 3G services to new customers in unlicensed circles, they drastically reduced 2G data tariffs to prevent their customers from shifting to operators which had 3G spectrum in the users’ home circle.

Interestingly, Tata Teleservices Limited (TTSL) and RCOM went a step ahead and slashed 3G tariffs as well, in June and July 2013 respectively. In fact, RCOM reduced 3G tariffs by 50 per cent to bring them at par with its 2G data rates. The move benefited the company, which witnessed a significant rise in data usage across 2G and 3G networks.

In November 2013, Vodafone India reduced 2G data tariffs for the second time in the year. This time, the operator slashed rates by 80 per cent across the country following the success of its previous tariff reduction in May 2013.

But as data usage started to pick up following the tariff cut, Bharti Airtel, Vodafone India and Idea Cellular reduced discounts and promotional offers to increase their revenue. Similarly, RCOM reduced the data usage limit for all 3G packs in December 2013, resulting in an artificial tariff increase of 26 per cent.

“One nation, free roaming” regulation drives down roaming charges

In 2013, substantial changes were witnessed in roaming tariffs. In September 2012, the Ministry of Telecommunications and IT had stated that roaming charges would be abolished by October 2013. Taking the government’s initiative forward, TRAI imposed a cap on roaming tariffs at Re 1 per minute, Rs 1.50 per minute and Re 0.75 per minute for outgoing local, outgoing STD and incoming calls respectively.

In line with the “one nation, free roaming” regulation, several operators reduced their roaming tariffs and offered free incoming calls on roaming. Aircel was the first company to abolish roaming charges on incoming calls; it also set the same rates for local and STD calls irrespective of the subscriber’s location across the country. Bharti Airtel and Videocon also reduced roaming charges in accordance with the regulation in March 2013. Following this, Vodafone India, Idea Cellular, TTSL and others reduced roaming charges significantly.

Though the reduction in roaming charges has affected operator revenues, the impact has been limited as the complete removal of roaming charges has not happened yet.

Tariff revision to continue in the near future

In 2014, operators are likely to continue to increase tariffs and reduce discounts for voice services in order to improve their profit margins, especially in the current scenario of stagnation in minutes of usage. Regulatory issues as well as the huge debt burden will force operators to increase voice tariffs. Operators are required to pay a one-time fee for holding excess spectrum in the 800 MHz and the 1800 MHz bands. Moreover, Bharti Airtel and Vodafone India will need to acquire spectrum in the 900 MHz band in the upcoming auction, failing which they would have to shift their subscribers to the 1800 MHz band. This may necessitate the installation of additional towers and, therefore, substantial capex.

In contrast, data service prices are expected to fall further as the industry awaits the launch of 4G services by Reliance Jio Infocomm Limited (RJIL), which has a pan-Indian broadband wireless access licence. If RJIL prices 4G services at tariffs similar to those for 3G services, the industry may witness a tariff war. In such a scenario, operators with 3G spectrum would need to further reduce tariffs to attract customers.

Voice tariff hikes and higher adoption of data services owing to a price reduction in 2013 have improved the revenues and profitability of several operators in the past two quarters. This will encourage operators to undertake further voice tariff hikes in the future. However, going forward, operators would need to carefully assess the impact of tariff hikes on subscriber churn as any major change in call rates could adversely impact the subscriber base and a company’s competitiveness in the price-conscious Indian telecom market.