'Pay-per-use' took away telcos' excess profit?

BANGALORE, INDIA: The pay-per-use model introduced by Tata Docomo in June 2009 had its competitors in the Indian telecom industry standing in utter bewilderment for a while before they made up their mind to respond to it.

It was followed by a hot battle on the tariff front, and the industry then registered a dip of over 15 per cent in revenues in September 2009 compared to the quarter ended on December 2008 (credit to Voice and Data).

However, Tata Teleservices Ltd (TTSL), which serves its customers through brands including Tata Docomo and Tata Indicom, is of the opinion that the loss is faced by only those players who have been charging customers for unused minutes.

“We debuted in the industry with a unique billing plan which charged customers only for what they used. So, if anybody, it is those who were not ‘lean’ in their billing plan, are facing the revenue losses and not us,” says Anil Sardana, managing director, Tata Teleservices Ltd.

“In fact, the industry is set to see an increase in revenue as there would be more customer addition in coming months owing to the paradigm shift in tariff plans,” he adds.

Adding to the worry is the fact that investors have so far been not happy with the development as was evident in the 63 per cent dip in the industry’s market capitalization, which nosedived by Rs 95043.14 crore, as per a Voice and Data report.

If the recently announced quarterly results are to go by, the tariff war, as many analysts had warned, seems to have taken toll on the telcos' performances.

Bharti Airtel, despite adding 8.4 million subscribers to reach a total of 119 million, saw its net income fall 5 per cent from the preceding quarter. Airtel managed to report just a 1 per cent growth in revenue on a YoY basis.

It was evident that Idea Cellular Service is severely affected by the price war when it reported a 23 per cent decline in net profit last week. Moreover, analysts believe that Reliance Communication, which is yet to announce the result for this quarter, could turn the worst hit among the lot.

It is obvious that the ongoing competition has stretched the price-cutting limits to its maximum extent, making it mandatory for telcos to increase the number of subscribers as much as possible. And the industry is now adding 1.5 crore subscribers a month.

This hunger for subscribers had also seen many players trying to explore other markets, Airtel’s Bangladesh foray via the acquisition of Varid telecom being an example.

Virgin Mobile also, like TTSL on whose net work it serves its customers, is unfazed by these developments.

“We don’t worry about the revenue loss of some players. For us, it is all about exploring ways to make this brand endearing for the youth of the country,” says MA Madhusudhan, CEO, Virgin Mobile India.

The company, which launched its GSM service in southern part of the country, has introduced a new tariff plan, pricing both local and STD calls at rock bottom levels.

It seems that TTSL has no wish to give up the pay-per-use model as it believes the model to be just, apt and fit. It pioneered the price cut revolution and hosts many new players on its network.

“We are not aiming to increase our numbers, but want to serve customers with the most optimized pricing model,” Sardana says.

According to him, TTSL’s network was currently being used by 67 million customers. But he wouldn't disclose a break-up of the number of users hailing from the different brands hosted on his network - probably because numbers don't matter to TTSL.

So, it seems that the industry has to wait some more time before it sees any consolidation on tariff front.