Bharti Airtel and Idea Cellular on Wednesday increased effective tariffs on special value vouchers by between eight per cent and 25 per cent. The companies also reduced the validity of lifetime recharge vouchers for pre-paid cards — by nearly half in some circles — and increased the threshold limit that consumers have to pay for full-talktime plans.
Vodafone was quick to respond and hinted they would soon follow suit. “We are inclined to follow (with a price increase) to maintain consistency and competitive position, though we haven’t decided on our precise circle-wise moves,” said a Vodafone spokesperson.
If all telecom companies increase prices, the 360-million pre-paid customers in the country would have to pay more. There are a little over 900 million mobile customers in India.
The move was meant to increase the average realisation per minute (ARPM) of telcos. ARPM had dropped by more than half from 2007 — from an average Rs 1 a minute to 42-44 paise a minute for incumbent telcos and as low as 20 paise for new players. This sharp fall was primarily due to cut-throat competition, which led to an increase in free minutes, high churn, and increasing distribution margins. However, the rack rate for telcos ranged from 60 paise to 90 paise a minute.
The price increase will help the finances of telcos, analysts said, and will not impact usage patterns. An increase of 1 paisa in realisation per minute would help, other things being equal, said analysts. This is expected to add a little over Rs 1,000 crore to Bharti Airtel’s bottom line.
Telecom analyst Rikesh Parekh of Motilal Oswal said: “The cumulative impact of the voucher price increase could be 1.5 paise to 2 paise on the blended net revenue per minute over the next three to six months.” For Bharti, this could mean an addition of Rs 1,500 crore to Rs 2,000 crore to the bottom line.
Bharti said in a statement: “There is no change in the headline rate. In most circles, we have reduced promotional benefits and free minutes on both acquisition and existing usage.”
Idea said free minutes that go with promotions on offer have been reduced. “In line with competition, one or more marginal promotional benefits are coming to an end,” said a top executive of Idea Cellular.
The euphoria of the tariff hike spread to the stock markets, too. Bharti’s stock on Wednesday closed 4.4 per cent higher than the last close on the BSE. Idea’s stock zoomed to four per cent in intra-day trade, but closed flat at Rs 118 a share.
Analysts are now betting there would be more tariff hikes across the board. Top telecom executives conceded that with their costs now set to go up, as spectrum gets costlier, they have no choice but to hike tariffs.