Tariff War - Telecom Space In India
Strategy followed by the operators
Why did the telecom operators reduce their rates over the last 15 years? While one major reason is the regulatory and policy changes brought in by the Government of India which was passed on to the customers by the operators and second major reason is the cut throat competition faced by the industry. When the mobile phones were launched in the country the Government allowed two operators in each circle and during 2000 the government allowed BSNL / MTNL to launch mobile services in all circles. In 2001 the Government allowed the fourth operator to launch services. In 2003 RCom entered the telecom market as the fixed services operator which was later on converted to Unified Access Licence. The abolition of incoming call charges in 2003 and withdrawal of ADC further reduced the tariff. Finally issue of additional licences in 2008 created an unprecedented tariff war and brought the rates to a level which is uneconomical and unviable. In a tariff war, companies try to acquire larger share of customers by offering special promotions or rates like per second billing and free minutes. The incumbent operators have responded to the competition as they did not have a choice. While most of the existing operators never wanted to lead the price war, they subsequently responded to the needs of the market for survival. An argument in support of tariff reduction is that the telecom companies no longer making profit from local or national calls but they will get substantial revenue from value added services like caller tunes, data services etc. There are around 100 different value added services offered by telecom companies
Innovative methods introduced by the telecom operators
Some of the innovative plans introduced by the telecom operators are life time validity, per second billing and inexpensive recharge and free on net calls.The pay per second was introduced by some telecom operators during late 90s but later on withdrawn to increase the realization per minute. However when Tata Docomo launched pay per second in 2009, it created a major impact and forced all operators to follow suit. But this has affected the long term financial viability of the telecom operators and led to crash of telecom share prices in the market. Similarly the chotta recharge was introduced by Vodafone with a recharge voucher of Rs 10 when the lowest denomination available in the market was Rs 50. It became very popular and brought large number of prepaid subscribers by way of new additions. Virgin Mobile, MVNO operator has gone one step ahead and announced 10 paise free for every incoming calls in their network. Life time validity was another innovation in which the telecom operators removed the requirement of minimum monthly commitment to enlarge the market and reach. When the voice call tariff rates were plummeting, the SMS rates were almost steady and remained untouched. However when 'The Times of India' published a story on the cost and the call charged by operators for SMS, another round of tariff reduction was announced. Tata Docomo took the lead and announced SMS rate at pay per character
Telecommunication is the transmission of messages, over significant distances, for the purpose of communication. In earlier times, telecommunications involved the use of visual signals, such asbeacons, smoke, semaphore telegraphs, signal flags, and optical heliographs, or audio messages via coded drumbeats, lung-blown horns, or sent by loud whistles, for example. In the modern age of electricity and electronics, telecommunications now also includes the use of electrical devices such as telegraphs, telephones, and teletypes, the use of radio and microwave communications, as well as fiber optics and their associated electronics, plus the use of the orbiting satellites and the Internet
Telecom Tariff War In India
The Indian telecom industry is one of the fastest growing industries in India next only to IT. There are around 15 operators competing in the market for the telecom space in India. The Indian telecom sector is one of the most competitive markets in the world with a subscriber base of 670 million and growing at the rate of 15 – 20 million every month. Tariff rates in India are the lowest in the world which may be very good for the customers but the telecom companies are facing severe financial crisis due to declining revenue trend and profit margin. This has adversely affected the market capitalisation of all telecom companies and the share prices have taken a dip during the recent period
Telecom rates over the yearsDuring 1995 when the mobile companies were first launched the rate per minute was Rs 16.80 and the incoming calls were also charged at the same rate. Apart from these rates which are called airtime, the customers were also charged the actual landline charges called PSTN which is payable to the government operators like BSNL and MTNL. As compared to that, the average call charge today has come down to less than 40 ps. The telecom operators are offering a large quantum of free minutes and the rates are now charged per second as compared to per minute earlier
Telecom Tariff War In India
The Indian telecom industry is one of the fastest growing industries in India next only to IT. There are around 15 operators competing in the market for the telecom space in India. The Indian telecom sector is one of the most competitive markets in the world with a subscriber base of 670 million and growing at the rate of 15 – 20 million every month. Tariff rates in India are the lowest in the world which may be very good for the customers but the telecom companies are facing severe financial crisis due to declining revenue trend and profit margin. This has adversely affected the market capitalisation of all telecom companies and the share prices have taken a dip during the recent period
Telecom rates over the yearsDuring 1995 when the mobile companies were first launched the rate per minute was Rs 16.80 and the incoming calls were also charged at the same rate. Apart from these rates which are called airtime, the customers were also charged the actual landline charges called PSTN which is payable to the government operators like BSNL and MTNL. As compared to that, the average call charge today has come down to less than 40 ps. The telecom operators are offering a large quantum of free minutes and the rates are now charged per second as compared to per minute earlier
Strategy followed by the operators
Why did the telecom operators reduce their rates over the last 15 years? While one major reason is the regulatory and policy changes brought in by the Government of India which was passed on to the customers by the operators and second major reason is the cut throat competition faced by the industry. When the mobile phones were launched in the country the Government allowed two operators in each circle and during 2000 the government allowed BSNL / MTNL to launch mobile services in all circles. In 2001 the Government allowed the fourth operator to launch services. In 2003 RCom entered the telecom market as the fixed services operator which was later on converted to Unified Access Licence. The abolition of incoming call charges in 2003 and withdrawal of ADC further reduced the tariff. Finally issue of additional licences in 2008 created an unprecedented tariff war and brought the rates to a level which is uneconomical and unviable. In a tariff war, companies try to acquire larger share of customers by offering special promotions or rates like per second billing and free minutes. The incumbent operators have responded to the competition as they did not have a choice. While most of the existing operators never wanted to lead the price war, they subsequently responded to the needs of the market for survival. An argument in support of tariff reduction is that the telecom companies no longer making profit from local or national calls but they will get substantial revenue from value added services like caller tunes, data services etc. There are around 100 different value added services offered by telecom companies
Innovative methods introduced by the telecom operators
Some of the innovative plans introduced by the telecom operators are life time validity, per second billing and inexpensive recharge and free on net calls.The pay per second was introduced by some telecom operators during late 90s but later on withdrawn to increase the realization per minute. However when Tata Docomo launched pay per second in 2009, it created a major impact and forced all operators to follow suit. But this has affected the long term financial viability of the telecom operators and led to crash of telecom share prices in the market. Similarly the chotta recharge was introduced by Vodafone with a recharge voucher of Rs 10 when the lowest denomination available in the market was Rs 50. It became very popular and brought large number of prepaid subscribers by way of new additions. Virgin Mobile, MVNO operator has gone one step ahead and announced 10 paise free for every incoming calls in their network. Life time validity was another innovation in which the telecom operators removed the requirement of minimum monthly commitment to enlarge the market and reach. When the voice call tariff rates were plummeting, the SMS rates were almost steady and remained untouched. However when 'The Times of India' published a story on the cost and the call charged by operators for SMS, another round of tariff reduction was announced. Tata Docomo took the lead and announced SMS rate at pay per character
Frames
Frames are generally made of plastic, nylon, a metal or a metal alloy. Nylon frames are usually used in sports because they are lightweight and flexible. They are able to bend slightly and return to their original shape instead of breaking when pressure is applied to them. This flex can also help the glasses grip better on the wearer's face. Metal frames are usually more rigid than nylon frames, thus they can be more easily damaged when the wearer participates in sport activities, but this is not to say that they cannot be used for such activities. Because metal frames are more rigid, some models have spring loaded hinges to help them grip the wearer's face better. The end of the resting hook and the bridge over the nose can be textured or have rubber or plastic material to improve hold. The ends of the resting hook are usually curved so that they wrap around the ear; however, some models have straight resting hooks. Oakley, for example, has straight resting hooks on all their glasses, preferring to call them "earstems". Frames can be made to hold the lenses in several different ways. There are three common styles: full frame, half frame, and frameless. Full frame glasses have the frame go all around the lenses. Half frames go around only half the lens; typically the frames attach to the top of the lenses and on the side near the top. Frameless glasses have no frame around the lenses and the ear stems are attached directly to the lenses. There are two styles of frameless glasses: those that have a piece of frame material connecting the two lenses, and those that are a single lens with ear stems on each side. Some sports-optimized sunglasses have interchangeable lens options. Lenses can be easily removed and swapped for a different lens, usually of a different colour. The purpose is to allow the wearer to easily change lenses when light conditions or activities change. The reasons are that the cost of a set of lenses is less than the cost of a separate pair of glasses, and carrying extra lenses is less bulky than carrying multiple pairs of glasses. It also allows easy replacement of a set of lenses if they are damaged. The most common type of sunglasses with interchangeable lenses has a single lens or shield that covers both eyes. Styles that use two lenses also exist, but are less common
Frames are generally made of plastic, nylon, a metal or a metal alloy. Nylon frames are usually used in sports because they are lightweight and flexible. They are able to bend slightly and return to their original shape instead of breaking when pressure is applied to them. This flex can also help the glasses grip better on the wearer's face. Metal frames are usually more rigid than nylon frames, thus they can be more easily damaged when the wearer participates in sport activities, but this is not to say that they cannot be used for such activities. Because metal frames are more rigid, some models have spring loaded hinges to help them grip the wearer's face better. The end of the resting hook and the bridge over the nose can be textured or have rubber or plastic material to improve hold. The ends of the resting hook are usually curved so that they wrap around the ear; however, some models have straight resting hooks. Oakley, for example, has straight resting hooks on all their glasses, preferring to call them "earstems". Frames can be made to hold the lenses in several different ways. There are three common styles: full frame, half frame, and frameless. Full frame glasses have the frame go all around the lenses. Half frames go around only half the lens; typically the frames attach to the top of the lenses and on the side near the top. Frameless glasses have no frame around the lenses and the ear stems are attached directly to the lenses. There are two styles of frameless glasses: those that have a piece of frame material connecting the two lenses, and those that are a single lens with ear stems on each side. Some sports-optimized sunglasses have interchangeable lens options. Lenses can be easily removed and swapped for a different lens, usually of a different colour. The purpose is to allow the wearer to easily change lenses when light conditions or activities change. The reasons are that the cost of a set of lenses is less than the cost of a separate pair of glasses, and carrying extra lenses is less bulky than carrying multiple pairs of glasses. It also allows easy replacement of a set of lenses if they are damaged. The most common type of sunglasses with interchangeable lenses has a single lens or shield that covers both eyes. Styles that use two lenses also exist, but are less common
Impact on industry Revenue and Profit
All these tariff wars resulted in huge drop in the revenues of telecom operators in 2009-10 and the industry reported a modest 2.5 percent growth as compared to 20% in the previous year. The price war has affected all telecom companies and the impact varied depending on the various stages of their evolution. While the impact is minimum ot temporary for the companies with huge free cash flow, it is disastrous for the new entrants and the companies which are in the process of network expansion. The telecom services industry reported a revenue of Rs.159,510 crore against the previous year's revenue of Rs.155,683 crore. This revenue includes revenue from fixed, mobile NLD and ILD businesses. The industry has now come to a stage where it cannot afford any further tariff reduction. The worst affected are the new operators who started this war and many of them are looking for consolidation and some even proposed to surrender their licences to the Government. Fitch expects the recent 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. In a report entitled "Indian Telecom Industry - Stable Outlook with declining margins" dated 17th August 2009, Fitch stated that EBITDA margins of existing operators will fall on lower ARPUs in the near term. The exaggerated tariff reduction and competitive intensity will likely reduce ARPUs by 10%-15%, which is lower than expected. 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, 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 (RLCM.BO) (Rcom) has reduced the tariff to 50 paise per minute for local, STD, roaming and SMS, for both off-net and on-net calls. BSNL has also launched per second billing plan in Karnataka, Andhra Pradesh and Orissa. Fitch expects other incumbent operators to eventually match the reduced tariff plans, considering the adoption of mobile number portability in the near future. Nevertheless, Fitch expects the Stable Outlook of the sector to continue, given the net monthly subscriber additions. However, the impending 3G and BWA auctions remain an event risk. Fitch expects subscriber growth to be at a CAGR of 25%-30% over the next three years up to FY12, as compared to a CAGR of 44% in the last three years (FY07- FY09). The incumbent operators with strong balance sheets and strong portfolio of high-end customers in metro areas are expected to maintain their credit profile. 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. The telecom industry has yet to see service launch of other UASL holders like Etisalat DB Telecom India, Datacom, Telenor - Unitech wireless, Loop Telecom and S-tel. Fitch believes that the reduced industry profitability will likely expedite industry consolidation in the medium to long term. The brutal price war rocking India for the past few months may certainly be lucrative for customers but it has raised the concern of the analysts, who could not see any end for this bloodbath. The latest offer by Mahanagar Telephone Nigam Limited of as little as half a paisa (100 paisa are in a rupee) a second for a call, India's telecoms market, already the cheapest in the world, just got cheaper. The rapidly growing telecom market of India, which already has about 500m subscribers and adds about 10m new users a month, is considered one of the key drivers of its economic growth in recent years. Analysts believe the industry may have too many operators chasing a market in which subscriber numbers are high but average monthly spending by users on phone calls is very low. After the first shot in the current price war was fired earlier this year by Tata DoCoMo, other telecom operators joining the game and the continuously plunging call rates have made telecoms the worst performing sector in India's stock market, going down by 27 per cent this year. The government's plan to introduce number portability at the end of this month, in which users can retain their existing mobile number while swapping between vendors is, expected to promote another round of price competition. Whatever concerns the industry analysts may have, the festival of low rate has just begun for the consumers
All these tariff wars resulted in huge drop in the revenues of telecom operators in 2009-10 and the industry reported a modest 2.5 percent growth as compared to 20% in the previous year. The price war has affected all telecom companies and the impact varied depending on the various stages of their evolution. While the impact is minimum ot temporary for the companies with huge free cash flow, it is disastrous for the new entrants and the companies which are in the process of network expansion. The telecom services industry reported a revenue of Rs.159,510 crore against the previous year's revenue of Rs.155,683 crore. This revenue includes revenue from fixed, mobile NLD and ILD businesses. The industry has now come to a stage where it cannot afford any further tariff reduction. The worst affected are the new operators who started this war and many of them are looking for consolidation and some even proposed to surrender their licences to the Government. Fitch expects the recent 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. In a report entitled "Indian Telecom Industry - Stable Outlook with declining margins" dated 17th August 2009, Fitch stated that EBITDA margins of existing operators will fall on lower ARPUs in the near term. The exaggerated tariff reduction and competitive intensity will likely reduce ARPUs by 10%-15%, which is lower than expected. 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, 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 (RLCM.BO) (Rcom) has reduced the tariff to 50 paise per minute for local, STD, roaming and SMS, for both off-net and on-net calls. BSNL has also launched per second billing plan in Karnataka, Andhra Pradesh and Orissa. Fitch expects other incumbent operators to eventually match the reduced tariff plans, considering the adoption of mobile number portability in the near future. Nevertheless, Fitch expects the Stable Outlook of the sector to continue, given the net monthly subscriber additions. However, the impending 3G and BWA auctions remain an event risk. Fitch expects subscriber growth to be at a CAGR of 25%-30% over the next three years up to FY12, as compared to a CAGR of 44% in the last three years (FY07- FY09). The incumbent operators with strong balance sheets and strong portfolio of high-end customers in metro areas are expected to maintain their credit profile. 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. The telecom industry has yet to see service launch of other UASL holders like Etisalat DB Telecom India, Datacom, Telenor - Unitech wireless, Loop Telecom and S-tel. Fitch believes that the reduced industry profitability will likely expedite industry consolidation in the medium to long term. The brutal price war rocking India for the past few months may certainly be lucrative for customers but it has raised the concern of the analysts, who could not see any end for this bloodbath. The latest offer by Mahanagar Telephone Nigam Limited of as little as half a paisa (100 paisa are in a rupee) a second for a call, India's telecoms market, already the cheapest in the world, just got cheaper. The rapidly growing telecom market of India, which already has about 500m subscribers and adds about 10m new users a month, is considered one of the key drivers of its economic growth in recent years. Analysts believe the industry may have too many operators chasing a market in which subscriber numbers are high but average monthly spending by users on phone calls is very low. After the first shot in the current price war was fired earlier this year by Tata DoCoMo, other telecom operators joining the game and the continuously plunging call rates have made telecoms the worst performing sector in India's stock market, going down by 27 per cent this year. The government's plan to introduce number portability at the end of this month, in which users can retain their existing mobile number while swapping between vendors is, expected to promote another round of price competition. Whatever concerns the industry analysts may have, the festival of low rate has just begun for the consumers
Conclusion
The ongoing tariff war in the highly competitive Indian telecom market has been taking new shape with every passing day. Operators have been announcing new promotional schemes including reduction in tariffs for voice call, slashing roaming charges and many more such lucrative offers. Recently floated idea of per second call rates has further aggravated competition among telecom players with every operator seemingly imitating others for retaining their market share. Bharti Airtel and Tata Docomo have reduced roaming charges, by almost 60% while Tata Docomo implemented per second billing mechanism to roaming. Roaming charges accounts for around 10-12% of operators' earnings and the recent developments may significantly erode roaming revenue of operators. Experts believe that mobile number portability is further going to intensify the competition as operators would be forced to come up with customer friendly schemes for retaining their customer base. Moreover, the ongoing tariff war is beneficial for customers. Every industry has seen price wars and it is a global phenomenon. But the tariffs have now fallen to level which is not sustainable any more. The 3G launch and Mobile number portability are the two major events which are expected during Q3 2010-11. These two events are the next two important mile stones in the history of Indian Telecom and likely to trigger another unhealthy price war. It is time for TRAI to regulate the telecom tariff in the interest of the industry. In 2004 TRAI moved to a forbearance regime wherein the operators did not require prior approval for tariff changes. Currently the tariff is left to the market forces and the telecom operators are mandated to file with TRAI the tariff change details within a week of implementation. With the objective of long term health of the industry, the TRAI should ask the telecom operators to present their business cases every time when they change the tariff. To achieve the next target of 100% tele-density, the industry needs support from the investors which will be possible only if the industry runs a profitable operation. The industry has created huge economic and social benefits to the nation during the last 15 years. The industry's growth is directly linked to the GDP growth. The policy makers and regulatory body should ensure that this industry continues to grow and reach further heights
Referance
http://en.wikipedia.org/wiki/Telecommunication
http://www.bizdewz.com/telecom-india-tariff-war-that-never-ends/
http://www.livemint.com/2009/11/15234244/Tariff-war-cuts-short-telecom.html
http://www.business-standard.com/india/news/telecom-shares-falltariff-war/13/17/372420/
http://www.financialexpress.com/news/intense-tariff-war-bleeds-telecom-companies/535392/1
Other Travel Partners Website : For Travel & Tour Packages
Hillstationtour
Indian Beaches Tour Packages
Incredible India Tour & Travel Packages
The ongoing tariff war in the highly competitive Indian telecom market has been taking new shape with every passing day. Operators have been announcing new promotional schemes including reduction in tariffs for voice call, slashing roaming charges and many more such lucrative offers. Recently floated idea of per second call rates has further aggravated competition among telecom players with every operator seemingly imitating others for retaining their market share. Bharti Airtel and Tata Docomo have reduced roaming charges, by almost 60% while Tata Docomo implemented per second billing mechanism to roaming. Roaming charges accounts for around 10-12% of operators' earnings and the recent developments may significantly erode roaming revenue of operators. Experts believe that mobile number portability is further going to intensify the competition as operators would be forced to come up with customer friendly schemes for retaining their customer base. Moreover, the ongoing tariff war is beneficial for customers. Every industry has seen price wars and it is a global phenomenon. But the tariffs have now fallen to level which is not sustainable any more. The 3G launch and Mobile number portability are the two major events which are expected during Q3 2010-11. These two events are the next two important mile stones in the history of Indian Telecom and likely to trigger another unhealthy price war. It is time for TRAI to regulate the telecom tariff in the interest of the industry. In 2004 TRAI moved to a forbearance regime wherein the operators did not require prior approval for tariff changes. Currently the tariff is left to the market forces and the telecom operators are mandated to file with TRAI the tariff change details within a week of implementation. With the objective of long term health of the industry, the TRAI should ask the telecom operators to present their business cases every time when they change the tariff. To achieve the next target of 100% tele-density, the industry needs support from the investors which will be possible only if the industry runs a profitable operation. The industry has created huge economic and social benefits to the nation during the last 15 years. The industry's growth is directly linked to the GDP growth. The policy makers and regulatory body should ensure that this industry continues to grow and reach further heights
http://en.wikipedia.org/wiki/Telecommunication
http://www.bizdewz.com/telecom-india-tariff-war-that-never-ends/
http://www.livemint.com/2009/11/15234244/Tariff-war-cuts-short-telecom.html
http://www.business-standard.com/india/news/telecom-shares-falltariff-war/13/17/372420/
http://www.financialexpress.com/news/intense-tariff-war-bleeds-telecom-companies/535392/1
Other Travel Partners Website : For Travel & Tour Packages
Hillstationtour
Indian Beaches Tour Packages
Incredible India Tour & Travel Packages
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