Mobile rate cut order of the day

MUMBAI: Mobile tariffs are continuously declining, but telecom operators beat street expectations to post robust numbers every quarter. What keeps the telecom players going and how do they sustain margins in the world���s most competitive telecom market? ET spoke to industry analysts, who agree that there is scope for more cuts. India already has the world���s lowest tariffs at 40 paise per minute for local calls and in some cases, even free intra-network calls.

The current round of tariff cuts by operators has been triggered by two factors. One is the abolition of Access Deficit Charge (ADC), paid by private operators to public sector BSNL for providing rural telephony. Private players such as Bharti Airtel, Vodafone Essar, Idea Cellular, Tata Teleservices and Reliance Communications were paying 0.75% of their annual revenues at ADC. With the abolition, their outgo has reduced and the gains can be diverted to offer more consumer-friendly rates.

Secondly, telecom regulator Trai has also halved ADC on international calls to India to 50 paise per minute from April 1 and will phase it out completely by September-end. This will again reduce the burden on private players. Tariff cuts are now a regular feature of the Indian telecom landscape due to the vast economies of scale. ���It (price cut) is not hurting telcos at all. It is improving minutes of usage (MOU). India added close to 10m subscribers in March and if that is the acquisition pace, then reducing entry barriers will only help operators expand,��� Gartner���s Singapore-based senior research analyst Madhusudan Gupta told ET.

On Monday, Bharti Airtel reduced STD rates to Rs 1.50 a minute from Rs 2.65 and also slashed roaming tariffs. ���Not many users make STD calls. With this cut, new users will start making STD calls and existing consumers will increase usage. The capex remaining same, revenue will increase,��� Mr Gupta said. PricewatehouseCoopers (PwC) associate director & telecom analyst Arpita Pal Agarwal said operators can manage to cut rates due to economies of scale-existing as well as anticipated. ���As a country, we are nowhere near saturation. There are still millions of phone subscriptions to be sold,��� she said.

Operators are spreading fixed cost over an ever-increasing user base. ���There is scope for further economies of scale,��� she added. Cellular density in India is around 22%, leaving a lot of opportunities to be tapped in nation of 1.1billion people. KPMG director (telecom) Romal Shetty said fixed cost (of setting networks infrastructure) remains constant up to a certain number of subscribers and beyond that too, it is incremental.