RCom bills to rise 20-30%, others may not follow suit

Operators are likely to further cut discounts and free minutes in order to boost revenue

Subscribers of Reliance Communications (RCom) stare at a 20-30 per cent rise in their mobile bills, owing to the company cutting discounts. “We have now corrected all commitment plans across the country,” said Gurdeep Singh, chief executive officer (wireless), RCom.

Until recently, telecom operators in India offered steep discounts to win customers, often sacrificing margins. However, rising airwave costs and heavy debts have forced them to end that strategy.

In October 2012, RCom had increased its headline rate from Rs 1.3 a minute to Rs 1.5 a minute. This, Singh claimed, didn’t lead to any fall in customer demand or a change in usage patterns. “With smaller operators shutting or scaling down operations and easing off hyper-competitive pressures, this would help pricing power move back to serious, long-term and pan-India operators and positively impact profitability,” he said.

RCom said a large part of its 119-million customer base used the company’s ‘commitment plans’. For two of its commitment plans, rates were raised from one paisa a second to 1.2 paise a second. The operator said these rises were aimed at increasing revenue per minute and profitability. Apart from a sharp reduction in promotional and concessional offers, RCom’s ‘commitment plan 48’ reduced calls within a network to 160 minutes from 500 minutes, a 65 per cent decline. Another such plan, ‘commitment plan 46’ reduced calls within a network from 200 minutes to 140 minutes, a 30 per cent fall.

Today, talk of the rate rise saw the RCom stock close at Rs 112.7 on the BSE, up 2.3 per cent. Analysts, however, termed this short-term excitement. “All these have been factored and priced in. There is too much stress on the operators and this was bound to happen,” said Sushil Sharma, telecom analyst at Brics Securities. Analysts believe not many operators would follow RCom’s move to increase rates. “There will be no rate hikes across the board. Even if they (operators) do, there would be creeping tariff hikes this year, on a circle-to-circle basis, where new players aren’t there,” said Sharma.

Ankita Somani, telecom analyst at Angel Broking, said, “I really don’t see headline tariffs going up for the next one quarter or so.”

A senior official of a GSM operator said the market wasn’t ready for headline tariff increases. “What is happening now isn’t rate rises; operators cutting discounts. We have been doing it. Nobody is raising rates,” he said.