Analysis: Mobile tariff unlikely to go up after auction

By March 27th, 2015 AT 7:39 PM

indiaTelecom Spectrum auction is a great success for the Government, it garners around Rs.1.10 Lakh Crore from the sale of mobile phone airwaves after 19 days of fierce bidding. The amount is more than Rs.1.06 Lakh Crore raised during the year 2010. The Finance Minister may happy that one-third of the amount will come to Governments kitty within 15 days and it is very useful for him to reduce the Fiscal Deficit of the country. Incumbents Airtel, Idea, RCOM, and Vodafone had bid aggressively to protect their businesses as their license expires by 2015-16.

Subscribers fear that tariff may go up in the near future as the incumbent operators may try to pass on the burden of the high cost of spectrum to their subscribers. However, this may not be possible for the operators easily for the following three important reasons.

First, only four operators have bought the spectrum at higher price to renew their licenses in some of the circles in which they provide services, but in every circle there are six to eight operators providing services. There is a very fierce competition among all these operators to win over the subscribers and everyone try to owe the subscribers by the one way or the other. In order to recover the higher spectrum cost if these operators try to increase their tariff, others also must respond to it, otherwise the increase cannot be sustain for a long. By using this opportunity, the other operators may try grab new subscribers as much as possible without increasing their tariff in order to utilize their spare capacity.

Second important thing is that, increase of service tax from 12.36% to 14% or maybe even to 16% inclusive of Swachh Bharat Cess. This will result in higher payout by subscriber at the current tariff level. So any further increase in tariff will be a double blow to the subscribers. So, the increase in the Service Tax rate has further tied the hands of the operators to some extent.

Last but not least, the expected launch of service by the richest Indian Mukesh Ambani through his flagship company Reliance Jio. RJIO has become a buzz word in the telecom space at least for the past one year and data-hungry subscribers are eagerly waiting for the RJIO’s launch. It is going to offer not only data but also voice service, as it is has got 2G license in 15 Circles.

RJIO so for invested more than Rs.70,000 crore apart from the amount committed by it for the fresh Spectrum during this present auction. Everyone in the industry is aware of his previous launch of service during the year 2003 under the brand Reliance Infocomm and how he penetrated the Market. However in the present market scenario is totally different. It is not easy for anyone to find a fresh subscriber who does not use the telephone at all, because already the tele-density is about to reach 1 billion mark in the near future. So the RJIO can only its grab subscribers from the existing operators or the subscriber has to buy an additional connection. In order to achieve this, RJIO must provide very excellent service at very cheaper tariff until it achieve at least half of its capacity. The RJIO will definitely use its muscle to penetrate into the market at least for two to three years through its quality and cheaper service in order to win over the subscribers.

Subscribers can hope that there won’t be any substantial increase in tariff in the near future, even if there any, that will be taken back when RJIO starts its operation.

Article authored by J.S.SOUNDARARAJAN

An IT professional who has got great passion for telecom. Has been closely watching Indian telecom space since 2009.

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