Telcos had no choice but to hike rates, say experts

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Telcos had no choice but to hike rates, say experts

RK Upadhyay, chairman of BSNL joins CNBC-TV18 to opine on whether the tariff party is over for the sector and what the future of the industry looks like.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Bharti Airtel BSE | NSE 29/05/12 Are Mutual Funds betting on Bharti Airtel? Other Stocks in this news Tata Teleservices (Maharashtra) | Bharat Sanchar Nigam | Idea Cellular |

The telecom sector in India is unique because more than 14 telecom operators compete neck-to-neck to grab market share while offering similar services. With subscription to services increasing sequentially for all companies even as spectrum licenses remain capped, the only choice was to play the tariff card.

Over time, prices hit rock-bottom but demand for quality service remained. Then came the 3G wave that washed all the money off the companies' balance sheets. Now, ridden with high debt on books and a falling average revenue per user (ARPU) that resulted in squeezed margins, the operators were in dilemma to find a conducive solution. Moderating price was the answer, but what will happen to market share then?

It was, basically, a question of who will bell the cat, and Bharti Airtel and Tata DoCoMo finally braved the feat, hiking tariff across circles. Others, such as Idea and Vodafone are expected to quickly clambered along.

RK Upadhyay, chairman of BSNL joins CNBC-TV18 to opine on whether the tariff party is over yet and what the future of the industry looks like.

Below is the verbatim transcript. Also watch the accompanying video.

Q: On the back of these recent tariff hikes the question everyone is asking is whether the worst in terms of the pricing pressure the industry has had to live through is behind you all?

A: What has happened in past one and half months was something which was on the cards. It is a natural corollary of hyper competition. Now you see in every circle, we have a host of operators; in certain places like Chennai, etc we have as many as 13 operators. With these many operators in the fray and with the kind of lower tariffs, it was becoming unsustainable. Therefore, some of the operators who have in the recent past increased their tariffs, in my opinion, it was something on the cards, it is nothing unexpected.

Q: Do you think what started with Tata Docomo and Bharti might be taken up by other operators across India?

A: I will not be able to comment upon that because every operator will have its own imperatives of their own position in the market, sustainability, cost calculations and so on. So it is difficult to say which operator will enhance how much. But one thing is sure, that perhaps for sometime to come, the era of tariffs being lowered and lowered is, for the time being, on the hold.

Q: Any concerns in terms of consumer demand slipping or that moniterables like usage, etc will start slipping because of this 20% price hike?

A: No, with this recent price hike I don't think there will be any impact on the customers. Customers would be willing to pay because it is a question of utility. Communication has become so much a part of their daily lives that this increase will hardly have any impact on the demand.

Q: So far the Bharti tariff increase is only in six circles. Do you think it can be scaled up to a pan India level including many other circles in the near future?

A: No, it is difficult to comment on how much more can industry absorb, but the fact remains that after seeing the results in certain circles where some operators have done the hike, I am sure they would measure the response for couple of months and only then move on to either reduce it or affect similar hike in other circles.

Q: Just as in the case of the price cuts where one competitor tried to undercut the other, any fear that this time around not everyone will go through the price hike and instead use the opportunity to eke out some market share?

A: You see increase is one aspect which has taken place. Perhaps other operators may also, after doing their homework, consider to follow suit or not. But what is important is that the level of ARPUs which are being obtained in the mobile segment in the country are definitely not sustainable for any operator. Therefore, the tariff hike is only one of the methods. With the new telecom policy 2011 being formulated and once it comes, I am sure there will be methodology clearly prescribed for consolidation. So the next step perhaps in the industry is consolidation.