Telecom tariffs may fall 25% this year

The mobile tariffs in the world's cheapest telecom market are set to fall further by at least 20-25 per cent during the year, more so due to increasing number of telecom operators and infrastructure overcapacity.

With local call rates at 33 paise (BSNL) and STD rates at 50 paise per minute (most mobile operators), the country has the lowest telecom tariffs in the world.

To begin with, the industry is expecting the new licensees (including Loop Telecom, Datacom Solutions and Unitech Wireless) to commence operations in this year itself.

This coupled with the expected expansion of operations of existing players like Aircel Cellular, Idea Cellular, Tata Teleservices and Reliance Communications (RCom) will have an impact on the mobile tariffs.

"Whenever new entrants commence operations in the country, there is a high chance of reduction in tariffs as they come in with innovative strategies and prices, including freebies. This will increase competitive pressure on other players who will have to launch similar products to compete in the market. Moreover, apart from tariffs, the price reduction would also be extended to handsets," European handset major Meridian India CEO Rajiv Khanna told Business Standard.

Another reason is an expected overcapacity in towers. The Telecom Regulatory Authority of India (Trai) estimates that the country needs around 300,000 towers by 2010 to support the massive 10 million monthly subscriber additions.

At present, the sector has around 2,75,000 towers. Operators like Bharti Airtel, Idea Cellular and Vodafone and independent tower companies like GTL Infrastructure and Indus Towers are increasing capacity and the 300,000-mark will be crossed much before the deadline, if not this year itself.

"The increase in the number of players will benefit the consumers in terms of newer enriched applications, choice and affordability. The on-ground traffic is increasing, but quality of traffic is not, clearly indicating that there is a need for more capacity. The tower infrastructure availability is going at comfortable speed. The industry will have to now think of ways and means of handling the increasing capacity proportionately, but more resource effectively," GTL Chief Operating Officer and director Charudatta Naik said.

The recent slash in termination charges from 30 to 20 paise for domestic calls, which the operators have begun passing on to the subscribers, is also pulling tariffs down. Termination charges are the charges paid by one operator to another for terminating the calls on the latter's network.

Moreover, the expected allocation of additional 2G spectrum and auction of 3G spectrum will also lead to a further rate cut. "The new government will have to allocate 2G spectrum to operators for additional expansion plans, while 3G auction will also take place immediately after the government coming into power. While some players would get 3G spectrum, others will slash prices to thwart competition," a Mumbai-based analyst said.

However, the price reduction is not all that good. According to Idea Cellular Managing Director Sanjeev Aga: "Indian companies are rolling our predatory prices without conducting proper studies, unlike in the US or developed countries. Price reductions coming in from desperate companies are anti-competition and these are not based on economic sense, and in the long run this would be anti-consumer and anti-industry."

In the short-term, it is the customer who will reap the benefits of the tariff fall.