Talk Isn't Cheap: Airtel and Idea Hike Call Tariffs, Vodafone May Follow Suit

The price increases come as mobile network operators try to meet rising costs, and as a pre-emptive move to improve financials before a major auction for airwaves in March 2013.


Bharti Airtel, India's top mobile network operator, has increased voice call prices to meet rising costs, boosting its share price and prompting rival Vodafone to consider following suit. The market of nearly 900 million customers, the world's biggest after China, has not seen a sustained increase in call charges for three years after a price war sent rates tumbling in 2009.

Idea Cellular, India's No.4 operator by customers, said on Wednesday that it had effectively raised prices for voice calls in some parts of the country after withdrawing promotional offers.

Vodafone's Indian unit, the country's second-biggest mobile carrier, said it was inclined to follow price moves by its competitors but had not decided on precise steps.

The price increases come as mobile network operators in India face billions of dollars in airwave surcharges after the government overhauled its system for the sale of airwave spectrum. The shake-up was in response to a scandal that broke in 2011 over an alleged below-market-price sale of permits and airwaves three years before.

The government will sell airwaves through open bidding in March, four months after the first such auction, with the minimum bid price at both auctions more than six times the previous fees set by the government.

"Part of the tariff hike is driven by cost pressures and also it is sort of a pre-emptive move in order to improve financials because we have a major auction coming up," Nirmal Bang analyst Harit Shah said.
Shah expects moderate increases in future prices, which could put pressure on call volumes. "(With) India being a price-sensitive market, I don't think you should assume (there will be) no impact on usage," he said.
There is no certainty that the new rates will stick. Operators dialled back a 2011 increase when they lost market share.
Bharti Airtel, nearly 33 percent-owned by SingTel, said in a statement that it did not increase headline tariffs but reduced promotional benefits and free minutes offered to customers. The price change was in line with the increase in its costs, Bharti added.
While the latest move to increase prices may not be sufficient to reverse declining profit at Bharti Airtel, it is at least a sign of things to come as companies struggle with higher regulatory fees and other costs, analysts said.
Bharti's move sent Indian telecoms shares higher as investors bet that rivals will follow the market leader.
Shares in Bharti Airtel closed 4.5 percent higher. Idea rose 4 percent and Reliance Communications gained as much as 3 percent, though both pared most of those gains.
A source familiar with the matter told Reuters that Bharti Airtel is reducing free minutes by up to a quarter and has increased prices of some call vouchers for prepaid customers by 5-15 rupees (10 to 30 cents).
The price increase will be extended to all of India's 22 telecommunications zones in phases, the source said, declining to be identified because the information was confidential.
"With the largest player raising prices, we expect other players to follow suit," brokerage Edelweiss Securities said.
Reliance Communications, the country's third-biggest carrier by customers, raised some voice call prices in September. A company spokesman did not offer any immediate comment when asked if they were planning a further increase.
Voice calls account for about 85 percent of revenue for India's mobile network operators, with mobile data still at a nascent stage. However, call rates are among the lowest in the world, often less than 1 cent per minute, squeezing the companies' profit margins.
The good news for the companies is that competition in a market once crowded with 15 players is easing after several smaller operators folded or cut back operations after a Supreme Court order last year to revoke their permits.
But the market still has seven national operators, a large number by global standards, and more could emerge as the government gears up for its airwave auctions.
(By Devidutta Tripathy, Additional reporting by Aradhana Aravindan; Editing by Tony Munroe and David Goodman)

TAGS: Telecom, Tariffs, airtel, Idea, Vodafone, Reliance