RCom plays catch-up, hikes tariff by 25%

Reliance Communications (RCom) has raised call rates by 25%, levelling tariff with major GSM players,  Airtel and  Vodafone, which took  similar hikes six months ago.

Analysts said the company is looking to shore up margins as it has lost 20 million subscribers, or 13% of its user base of 162 million, in July and was staring at flat growth from new and active subscribers as well.

Also, RCom is facing a Rs64 crore revenue loss due to its enterprise customers being blocked by Airtel on account of differences in the interconnect fee, a company source said on the condition of anonymity. The dispute is now pending in the court.

“RCom has increased the base tariff by 25% to 1.5 paise per second from 1.2 paise per second as the competitive intensity tapers off and input costs rise. The new tariff will be applicable across the country in next 30 days. The move will help improve topline and operative margins per user.”

The hike has already been implemented in RCom’s Madhya Pradesh, Himachal Pradesh, Bihar and Gujarat circles.

Idea Cellular has hiked prepaid tariffs by 15-20% in the Madhya Pradesh circle 10-12 days ago to test the impact on the market. According to a source in the know, Idea is likely to go in for another prepaid hike soon.

Ankita Somani, research analyst, IT & telecom, Angel Broking said, “RCom has actually implemented this tariff hike in their GSM band, which has much fewer subscribers, as compared to those on the CDMA band. Besides, RCom really needed to take this step to improve its margins urgently, since its active profile is among the lowest in the industry right now. It also has a lot of free minutes on its network. Thus, the tariff hike will compliment its weeding out process and is expected to improve average revenue per user margins and revenue profile.”

She said it was too early to comment on a possible increase in churn rates or further dent in new subscriber additions as a result of this tariff hike.  “The impact on the company’s subscriber base will depend on whether other operators also decide to go in for a hike in tariffs, which is not clear yet.”

The other players would find it hard to sustain margins at current rates and would probably have to go in for a hike soon, Somani said.

But many are still playing it safe.

TTSL, which was the other major loser in July in terms of a 2.4 million subscriber subtraction, has said it has no immediate plans of a price hike.

New players such as Uninor and MTS are still giving selective discounts as they are looking to grow their subscriber numbers.

Rajan Matthews, director-general, Cellular Operators Association of India, said, “Other operators have not yet indicated any intention to go in for additional tariff hikes. They will conduct individual market research and take a call on whether to increase tariffs in a piecemeal fashion, in certain circles or whether to go in for a cumulative hike across circles. However, it is likely that some operators will wait until after the auctions to hike tariffs.”

Call tariffs are likely to shoot up by 45-90 paise after the 2G auction in November, due to the high cost of spectrum involved, experts said.