Why Airtel, Vodafone and Idea Cellular want to raise tariffs

A general trend by Bharti Airtel, Vodafone and Idea Cellular, India’s big three GSM operators, to raise prepaid tariffs has got many customers irked.

But a close look at the tariff numbers of the Indian mobile sector over the last two years reveals the reason for the move. It points out that hammered by competition, many operators are now getting less than 39 paise per minute of outgoing calls.

To understand the situation, one has to rewind the clock to early 2009 when the first ‘new operator’, Reliance GSM set foot on what till then a cosy market for GSM operators.

Anil Ambani’s Reliance Commmunication entry was a rude interruption to the then prevailing ‘friendly fight’ situation between the three big GSM operators.

However, as the numbers reveal, even at the end of that quarter, GSM operators were still sitting pretty. Their average realization (tariff) was 76 paise per minute of outgoing call, both for prepaid and contract (billing) customers.

On the other hand, the CDMA operators, represented by Reliance and Tata Teleservices, were on a much harsher pitch.

Their average billing rate was just 51 paise per minute for prepaid customers, who comprised 93% of their subscribers. In other words, GSM operators were enjoying 50% higher tariffs compared to CDMA ones.

In fact, since all operators have to pay 20 paise per minute to the operator on whose line the ‘called’ subscriber is, a CDMA operator would be left with just 31 paise per minute for most of his calls, while a GSM operator would have 56 paise, or 81% more.

This ‘high tariff paradise’ was successfully beseiged by the two CDMA operators, Reliance and Tata Teleservices, throughout 2009.

While Tata Tele announced a tariff of 1 paise per second (in effect 56 paise per minute,) while Reliance announced a 50 paise per minute scheme, open to all subscribers.

Of course, neither had much to lose, as they were, in effect, only making around 51 paise per minute anyway.

But the impact was felt on the GSM operators. Over the next eight quarters, their average prepaid billing rate dropped drastically, ending at 49 paise per minute at the end of the first quarter of 2011. Worse, from 94% of total users in early 2009, prepaid users rose to 97% of the total users (see the chart.)

Of course, part of the reason for the drastic drop in average billing rates is the presence of subscribers of new operators like Uninor, Videocon, Tata DoCoMo who offer calls rates of around 40 paise per minute, even for long distance STD.

It is believed for the big three, average call rates are still around 60 paise per minute, which they now seem to want to raise to around 70 paise per minute.

The average tariff numbers also reveal other interesting trends.

For example, as a consumer, your chances of finding the cheapest call rates is with a prepaid CDMA provider such as Reliance or Tata Indicom or MTS.

The average tariff, as of March 2011, for prepaid CDMA is just 38 paise per minute, compared to 49 paise for GSM prepaid.

That is not to say that all CDMA customers are lucky or that they enjoy the cheapest call rates or plans in India.

In fact, the highest tariffs are also charged by CDMA operators, though only from billing or postpaid users.

The average realization for postpaid CDMA customers is 84 paise per minute, 22% higher than the average tariff of GSM billing customers (69 paise.)

In fact, even as all other rates have been falling, the CDMA operators have ‘defied gravity’ by continuously raising the average tariff charged from their ‘post-pay’ customers.

Two years ago, the average tariffs paid by a CDMA and GSM post-pay and a GSM prepaid customers were all the same — 76 paise per minute.

While the other two declined, the average CDMA billing customer is now paying 84 paise per minute.

What’s more, they have largely managed to maintain their prepaid to billing ratio. From 93% in early 2009, it has moved to only 94% of total customers now, compared to 97% for GSM.


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