War of Telecoms: A Win Win Situation for the Consumers

Posted on January 21, 2010 in Biz and Eco

Karuna Ahuja:

India has witnessed what many describe as a telecommunication revolution during the last decade. In just ten years, mobile phones, once a luxury item, have now become a necessary commodity in the country. They have now reached the bottom of the pyramid acquiring millions of new subscribers every month. Consequently, India is the cheapest nation in terms of teleservices and the second largest consumer of wireless services on the globe with nearly 450 million connected people and a teledensity of about 35% (Source: Wiki). From Airtel to Docomo, the most recent player to have taken a plunge into this vast pool of Indian Mobile Service Providers , there are 17 companies who have pledged themselves to the cause of shrinking the world to the size of a football in the cheapest possible way. This has taken the industry from being an oligopoly to an emerging area of hypercompetition.

The major cause of this revolution can be attributed to the launch to TATA DocoMo (Do Communication over Mobile) and MTS in major cities who offered per second pulse which was a new concept for the industry. As a result , within a month of its launch , DoCoMo was riding high with a million customers in Mumbai itself. This triggered off a tariff war which the biggies couldn’t help but enter into as well. In the past few months the tariffs have fallen a whooping 50% and in nearly all circles are under Re. 1 per minute for local calls.

Since it’s inception, DoCoMo has launched the ‘Pay per Second’ and ‘Pay per character’ talk and SMS plans respectively. These have been quite warmly received by the consumers. Vodafone & Airtel both has been forced to reduce and reconsider their tariff plans. Tata Indicom took the war to a level further. It introduced the ‘Pay per Call’ plan. Whether you talk for 1 or 10 minutes, you pay Re 1. This plan has definitely caught on with the customers. But, how profitable is it for Tata Tele is another question.Virgin is offering super attractive plans which talk of STD @ 1Paise/min. Aircel which is also catching up rapidly brought more innovations with the 1-2-3 tariff STD plan. According to the company, subscriber will be charged at reducing rates as they talk more on their phone. This will not only encourage users to call more and talk more, enjoy the benefit of reducing call rates but will also ensure high usage of current low utilized spectrum / bandwidth and thereby increase the revenue opportunity for Aircel as well. Along with such innovations in the tariff plans the companies also embark on the latest use of technology thus enabling more value-added, multimedia-rich data exchange. One happy result of this situation is the dissemination of relevant information that is made accessible with mobile devices through the mobile network by using the location information of the mobile device and the recent developments are positive indicators.

The million dollar question out here is what is the outcome of this war? A reference to management theories suggest that these strategies may help build up a market share but certainly delay the break even period and hence the companies may not may able to sustain it on a medium and long term basis. And by the the time their variable costs are covered, companies may start making losses. The Goliaths in the industry can surely afford the risk but any new player may not be guaranteed the ‘cushion’ that the incumbents (or the regular players) can afford. The negative impact that the established names are facing is falling share prices.

Strategically, the biggies cannot afford to bring down the tariffs to fifty percent as this will completely nullify their profit margins. Still they sit very comfortable as they share a huge chunk of the market which is virtually very stable population believing in the method of the tried and tested and may not switch over that easily. However with international companies taking interest in this field, even their situation seems precarious. Furthermore, at The International Telecommunication Union at Geneva in October last year, Telecom Regulatory Authority of India (Trai) chairman J S Sharma suggested that that per second pulse can be made mandatory for all the operators. This just means the companies have to be more innovative with their offers. While the switch to a per-second basis will be user friendly, it is likely to lead to revenue loss of 10-15 per cent for the telecom companies, according to an HSBC Securities report.

Nevertheless, it’s a win-win situation all along for the customers. As a result of such high competitiveness, the customers get to enjoy the pleasures of easy and cheap communication across the country and even across the globe. With the introduction of Mobile Number portability(MNP) wherein mobile telephone users can retain their mobile telephone numbers when changing from one mobile network operator to another, the consumer doesn’t have to think twice before switching service providers. Only the telco with the best network, best services and cheapest tariff plans will be able to retain customers which is a great thing for the consumers. Also, Personal navigation devices (PND) have gained considerable amplitude in India. With more private firms offering advanced features in the PNDs, such as MapMyIndia Navigator and SatGuide, while keeping the costs affordable, the corporate competition is leveraged to consumer advantage.

With such cut throat competition and constant innovation in this field, it would be interesting to see how the future course of the Indian Telecommunication Industry shapes up. With the main aim being achieving full customer satisfaction, these companies are here to stay and more are ready to take a fresh plunge in this bloodbath which is called the The Great Indian Tariff Tussle.

The writer is a correspondent at Youth Ki Awaaz and also a student of BITS Pilani.

Youth Ki Awaaz

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