No wars after data tariff cuts

Three telecom operators recently reduced their data tariffs by over 80%. However, this does not mean that they are going to the warpath and bleed like they did in 2009, as they cut voice tariffs. Unlike last time, data tariff cuts, might lead to higher bills for subscribers and hen more earnings.  

Almost all operators saw margin slides after voice tariff cuts. As operators go in for data tariff cuts, they are looking forward to increased margins and higher mobile bills from their customers. By cutting data tariffs, operators are getting more people to try this service, which will lead to more spending.

"3G is a new revenue stream and it is incremental revenue to be added. This is in addition to voice tariffs which are growing at a healthy rate. Data is a Trojan horse," said Gurdeep Singh, the president of wireless business at Reliance Communications.

Ambrish Jain, the deputy managing director of Idea Cellular says that whenever they cut data tariffs, more subscribers rapidly adopt the service. Added to that, those who already use data, use even more, leading to to higher realizations from subscribers.

"Within a short period of time, decrease in data tariffs gets covered by increase in usage. So, revenues get protected," said Jain.

Most of the steep tariff cuts announced, also might not translate into bill savings for subscribers. The tariff cuts announced are for pay-as-you-go models, which is for those subscribers who do not subscribe to Internet packs.

"The tariff paid by pack users are already lower than the 2 paisa per 10 KB that we offered. This reduction is for pay-as-you-go so that more people can try the service, said Jain.

Mahantesh Marilinga, senior telecom analyst at Finquest also believes that most of the cuts are gimmicky in nature. So, do the offers where 3G rates are equated to 2G rates. Reliance Communications kicked off this plan, which was followed by Vodafone and Idea.

"People might move to 3G if the rates are as low 2G. But as speeds of 3G are high, they end up surfing and spending more, which means the usage can be twice as much," said Marlinga.

Singh judges his subscriber base by the screen size and the quality of handsets they possess. "The larger the screen size, more the surfing and more revenue for us," he says.

He says that reducing 3G tariffs with that of 2G would mean that all those subscribers who have a handset and too scared of trying 3G will now be able to adapt it, with much less inhibition.

Market reports suggest that as many as 65 million subscribers use 3G handsets. However, those who use the service is a third of it, at 22 million. It is these subscribers they are trying to win.

The total data using base is also low at around 143 million to the total active subscriber base of around 700 million. As smartphone adoption is picking up and growing at breathtaking speeds of over 90%, operators want to cash in, by getting more of them to try their new service.

"3G is a new revenue stream and it is incremental revenue to be added. This is in addition to voice tariffs which are growing at a healthy rate. Data is a Trojan horse," said Singh.