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The explosive growth in the Indian telecom market has been accompanied by a sharp and steady decline in mobile airtime tariffs and handset prices. With more and more players entering the market, competition has soared and mobile services have become increasingly affordable.

The latest price war has been triggered by the launch of GSM services by leading CDMA operator Reliance Communications (RCOM). The company, which earlier offered GSM services in eight circles under Reliance Telecom, is now looking to extend its GSM footprint across the country.

In its characteristic style, RCOM has come out with unique and aggressive lowtariff schemes to grab market share. For example, it is offering a lifetime prepaid plan for only Rs 25 and, in some circles, free talktime worth Rs 900 spread over three months. RCOM used the low pricepoint strategy during its CDMA foray as well, offering handsets bundled with services at just Rs 501.

"The prices Reliance is offering for its GSM services across the country will hit its rivals if they do not revise their tariffs, which are going to be a major factor in increasing market share," says a telecom industry analyst.

But it does not look like RCOM's competitors are willing to concede any ground. Most GSM operators have already slashed their tariffs. Bharti Airtel, for example, has reduced the price of a new lifetime connection to Rs 99 with a minimum recharge option of Rs 200 in six months. Vodafone Essar and Idea Cellular too have reduced the minimum price of new connections. The former has slashed the costs for a lifetime prepaid scheme to Rs 199 from Rs 270. However, the lower tariffs that accompanied such connections earlier have been done away with. Similarly, an Idea Cellular lifetime prepaid connection is now available for Rs 199. The two operators have also reportedly increased the payouts to retailers for selling new connections.

While operators are slashing tariffs, they state that this has nothing to do with RCOM's GSM rollout. "We have slashed prices on lifetime prepaid cards for the benefit of start-up users in rural and semiurban areas," says Sanjay Gupta, Bharti Airtel's chief marketing officer.

Airtel's management has also dismissed any threat from RCOM's GSM tariffs and offers, which include free minutes and cheap lifetime validity prepaid cards. According to a senior Airtel executive, "No free minute models are sustainable and Reliance will withdraw these after some time. There is a section of customers who are deal-seekers and who churn from operator to operator. Once the freebies stop, these customers move back or settle elsewhere."

RCOM, however, is convinced that its offerings will work. According to company officials, the free talktime scheme will succeed in attracting not just deal-seekers but long-term consumers to its GSM network. "A large percentage of our new GSM customers are recharging beyond their free minutes," points out S.P. Shukla, president, wireless, RCOM.

"RCOM's launch will trigger a tariff war to keep off churn, but it is not likely to have any significant impact on the existing players as users are reluctant to shift. This may be a quicker route for RCOM to make itself eligible for additional spectrum," observes Dr Mahesh Uppal, director of consultancy firm ComFirst. According to the Department of Telecommunications' guidelines, new GSM operators reaching a subscriber base of 500,000 are entitled to receive additional spectrum of 1.8 MHz.

One point on which most analysts agree is that price-based competition will continue. With a number of new operators like Swan-Etisalat, Unitech-Telenor, Datacom, Sistema Shyam and Loop Telecom entering the fray, the war on the tariff front is clearly far from over.

Schemes that triggered tariff wars
Calls at Re 0.40: Reliance Infocomm (now RCOM) launched mobile services in India at Re 0.40 per minute in 2003, fulfilling Dhirubhai Ambani's dream to make a phone call cheaper than sending a postcard.

Chotta Recharge: Hutch (now Vodafone) launched the Chotta Recharge voucher for Rs 10 when the lowest recharge card available in the market cost Rs 50.

Non-stop Mobile: Tata Indicom launched the Non-stop Mobile scheme, which allowed users to recharge their cards once in two years and continue to receive free incoming calls. Other players soon responded to Tata Indicom's plan, which led to the launch of lifetime validity plans by all major operators.

Get Paid for Incoming: Virgin Mobile entered the Indian market with the breakthrough scheme, Get Paid for Incoming. The company offers Re 0.10 for every minute of incoming call.

Daily telephone allowance: RCOM launched GSM services in Mumbai offering subscribers Rs 10 worth of talktime every day for the first 90 days.