End of ‘paisa war’ in the telecom sector

The recently announced tariff hike in call rates by major telecom firms in the country is the beginning of a big trend. It means that India has ceased to be the market with one of the lowest call rates in the world. It is estimated that call rates in the country will increase by around 30% in the next one week as the remaining firms also hike their tariffs.

The telecom industry in the country is consolidating into four-five players and hence is rightsizing. A number of potential players like Sistema, Telenor etc, have made an unhappy exit with the SC verdict on 2G spectrum allocations. The event has avoided the threat of new entry for all the existing players. Of course the, loss generating tariff reduction war, based on ‘paisa’ rates has ended with the removal of potential competitors. The industry may now enter into a period of ‘right pricing.’

Expenses of the firms are set to rise, in the near future, which is a major factor compelling tariff hike. The operators have to make big investment in the coming years on many fronts. Firstly, many firms have to renew their licenses in 2014 which requires thousands of crores.  The roll out of the committed 3G needs large scale investment on the part of the operators. So far, 3G services in the country remains in a pathetic state because of inadequate fund with the operators. Reliance, which has a pan India 4G license, is yet to make a decision on providing the service. Again, the recent increase in diesel prices by the Government for bulk consumers including telecom tower operators will raise cost. 

Another major inducement for tariff hike is that subscriber base is not expanding rapidly compared to a couple of years back. Hence, there is no need for low priced call rates and mimics to attract new entrants. For the subscribers, time has reached to be cautious on their call time. 

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