Idea halves tariff for 3G, others may follow suit

There’s no wishing away tariff wars in telecom, it appears.
The debate over whether voice tariff wars are a thing of the past was still raging when Idea Cellular launched its premium, high speed 3G services.

Between late July and mid-August, it introduced a promotional offer giving a user double the data allowed under his 3G plan.

The offer, applicable across plans, effectively slashes the cost per unit of data by at least 50%.
Now, say industry experts, other operators may be set to take a cue.

“If others are looking for a volume game, then they have to follow suit, if not directly reducing tariff, at least indirectly, as Idea did, by increasing data limit,” said Archit Singal, analyst with Jaypee Capital Services.

“Once the volume picks up, and there is adequate scale in 3G operations, they can always raise tariff or lower data limit.”

On its part, Idea Cellular has denied having started a tariff war.
“We haven’t reduced headline tariffs for our 3G plans. It is a promotional offer where data download limit was doubled,” said an Idea Cellular spokesperson. “This is valid till the end of 2011.”

According to the Idea spokesperson, the ‘Double Dhamaka’ offer is meant to “enable mobile users to enter the world of 3G.”
HSBC analysts Rajiv Sharma, Tucker Grinnan and Harbhajan Singh, too, believe the indirect tariff reduction was a direct response to poor adoption.

“The move, in our view, is driven by a poor take-up in 3G so far and efforts by the company to take 3G mass market, evident from the company’s 3G brand campaign, which is trying to position 3G as mass market from its present positioning of high-end services,” they noted in their latest telecom sector report.

Executives at most telcos DNA contacted were reluctant to discuss pricing strategies citing competition. Industry analysts are convinced that 3G tariffs need to go down before there can be greater adoption of it and meaningful contribution to operators’ revenues.

“We consider current price points on 3G to be expensive to appeal to the masses but believe that over time, with scale advantage and volume growth, the prices will come down,” Goldman Sachs analysts Sachin Salgaonkar, Piyush Mubayi and Paras Mehta noted in an analysis of the poor initial response to 3G in the country.