Recently, Bharti airtel and Idea Cellular have withdrawn some freebies and promotional schemes like bonus cards and special tariff vouchers from prepaid subscribers across different circles. It is expected that more operators will follow this trend and go for eliminating freebies in respective circles. Not only this, it is expected that the days of lower tariffs are over and telecom operators are gearing to increase tariffs in respective circles in a phased manner.

In the first phase, operators are plugging unnecessary leakages and discounts in prepaid modules and trying to get more revenue realization from end consumers. In the second stage, focus would be on headline tariffs which will help in increasing top line and bottom line of all mobile operators in the country. And this is bound to happen shortly.

The big question is why will telecom tariffs increase in India?
First, the input cost is increasing and it will further increase in FY 2013-14. The rise in diesel cost has increased the input cost for operators as diesel is being used on an average 4-5 hours every day. Also the deregulation of diesel and monthly increase of diesel by Rs 0.40-0.50 per liter will put extra pressure on operators' input cost in FY 2013-14.

Along with the cost of diesel, the operators have already paid Rs 9,400 crore in the first phase of spectrum auction and it is bound to increase to another Rs 30,000-40,000 crore in the second phase of spectrum auction. So, in toto, the government would be collecting Rs 39,400-49,400 crore from the spectrum auction. All this will help in putting additional pressure on input cost. It seems the operators will have no choice but to recover it from end consumer by increasing per minute tariff in different circles.

Second, till last year, Indian mobile services witnessed intense competition with as many as 16 operators actively participating to get their share of the pie. With some operators closing their operations due to the Supreme Court's 2G verdict, the competition has reduced. All this has given some leeway to operators that if they increase the baseline tariff no operator will come with a counter offer. For eg, lowering of tariffs in the past has been affecting their bottom line badly.

The third quarter net profits of India's 3 listed mobile companies were not upto the mark. Bharti airtel stood at Rs 284 crore, Idea was at Rs 229 crore, and RCOM was at Rs 106 crore. A year back, the net profit figures for Bharti airtel was Rs 1,011 crore, Idea stood at `201 crore; and RCOM was at Rs 186 crore. So except for Idea all other operators have shown a decline in profits and this is true also for operators who have not been trading in stock exchanges. So, operators have no other option but to pass it on to the end consumer by increasing baseline tariff.

Third, data traffic is increasing but it is not as per the expectations of the operators. It seems 3G is picking up slowly but revenue realization is not upto the mark as data ARPU is less than Rs 50 per month. In case of 4G, the business model and ecosystem in still not in place and there is also a delay in large scale launch of services which will put additional pressure on operators. Even growth on voice is flat which leaves operators with no option but to focus on increasing voice revenue so that they can service their loan taken for paying 3G and 4G spectrum charges.

So, the question is who will take the first step to increase headline tariffs and the rest of the operators will follow. All this will help them in increasing their profitability so that they can sustain themselves for the long run. It is expected that telecom tariffs in India will increase in the range of 20-30%.
Pravin Prashant
pravinp@cybermedia.co.in