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Corporate May 2, 2012

Will Voda's move lead to a new wave of tariff hikes?

By Firstbiz Editors

It seems India's long-held status of having some of the world's cheapest mobile phone call rates might not last much longer.

In a move that might possibly herald the end of the era of ultra-cheap mobile tariffs for Indians, Vodafone, India's second largest telecom 0perator, hiked prices by20 percent, or to 1.2 paise per second from one paise, for Mumbai subscribers.

The development is likely to give traction to a view presented by telecom operators that high reserve prices proposed by the telecom regulator for the new auction of 2G spectrum would raise tariffs for consumers. (Read Firstpost story here).

Many of the companies affected by the SC verdict are already throwing up their hands in exasperation. Reuters

Telecom companies last raised prices on some of their services in July-August 2011. Until recently, anintensely competitive market brimming with telecom companies limited the scope for companies to hike prices too aggressively. In some telecom circles, competition was so heavy that more than 10 operators competed for a slice of the subscriber pie.

But the Supreme Court's judgement to cancel all 122 licences issued in 2008 because of irregularities in how they were awarded is set to change that.

The telecom regulator's proposals for the auction of the cancelled spectrum has the entire industry up in arms, especially over the high minimum price set for the auction of various radiowave bands.

Many of the companies affected by the SC verdict are already throwing up their hands in exasperation. In recent weeks,UAE's Etisalat and Bahrain's Batelco have said they are quitting India operations, while Norway's Telenor has threatened to pull out of India. A report in Wall Street Journal said Australia's Telstra and Sweden's TeliaSonera were also not expected to participate int the coming auction.

While only about 7 percent of more than 900 million telecom users will be affected by the license cancellations, the uncertainty over who wins a licence to continue operations will likely spark a shift among affected subscribers to bigger players like Vodafone and Bharti Airtel. The fact that the telcom regulator's proposals will only allow one company to win back its licence in this financial year will also prompt jittery subscribers to shift to more reliable operators expected to last long in the Indian market.

Since the newer and smaller players, which had been more aggressive with their pricing plans, have now been side-lined, the bigger incumbents have a clear field to raise tariffs and improve their profitability.

Expect other companies to follow.

by Firstbiz Editors

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