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Reliance Communications to raise call rates 20%, others may follow suit

Thursday, 17 April 2014 - 7:40am IST | Place: Mumbai | Agency: dna

Analysts say move may hurt company in a competitive environment

Reliance Communications, India's fourth-largest telecom operator by subscriber numbers, has raised call tariffs by 20%, effective April 25.

The hikes, 7% for headline tariffs and 20% for baseline tariffs, are applicable pan-India across RCom's prepaid segment, which make up 90% of its 117 million subscriber base.

Headline tariffs will see a spike from 1.5 paise/second to 1.6 paise/second, while for baseline tariffs special tariff voucher rates have been raised by 17-20%.

In October 2012, RCom was the first telco to raise headline tariffs by 25%, after which others followed suit.

The same may happen this time too as telcos' balance-sheets remain under stress due to spectrum payouts for 3G and the recent 2G auctions, negligible subscriber addition and stagnating Arpus (average revenue per user).

Telecom firms would also raise call rates to offset slashing of data rates.

Gurdeep Singh, chief executive officer, consumer business, RCom, said, "We continue to focus on growing profitable/paid minutes on our network and the current tariff hikes are part of our continued efforts to reduce free and discounted minutes, and offset the ever-rising costs of input materials. We expect revenue per minute to improve over the next few quarters and this will impact our performance positively."

Other telcos such as Airtel, Vodafone and Idea Cellular have been steadily raising baseline tariffs by removing freebies and promotional minutes from the system.

However, they have steadfastly denied headline tariff hikes as this may lead to subscriber churn.

Hitesh Shah, IT& telecom analyst with IDFC Securities, said, "Telcos have been going in for a mix of headline tariff increase as well as reduced promotional offers, which finally lead to improvement in RPM. Over the last nine months, RPM has improved by 7-10%, key drivers of which are reduced competition and increase in input costs."

"All players have understood that reducing tariff has not helped anybody and industry profitability had deteriorated significantly, so all of them are now acting more rationally. We believe such a mix of headline and baseline tariff increase will continue for the next few years, as well."

However, for RCom, which does not have any 2G spectrum payouts and which has already seen a significant drop in user base after weeding out its non-active subscribers, this headline tariff increase may be a concern.

Hemant Joshi, partner, Deloitte Haskins and Sells, said, "While on one hand telcos' profitability is under stress, on the other hand, in the short term, the competitive scenario with 8-10 operators may be challenging for a single company, especially at a time when most telcos are struggling with a huge churn rate, massive call drops, as well as an imminent 4G launch from a player that may also reduce voice tariffs to be more competitive."

However, an industry official requesting anonymity said, "It is too late for the industry to wait for Reliance Jio's entry to raise tariffs, as this is still some time. Besides, it's likely that RJio will slash data tariffs and not call tariffs."

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