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Can 3G seduce reluctant consumers with low tariffs?

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Another round of tariff wars seems to be back in the telecom sector. This time it is in the third generation or 3G space as we popularly call it. Major telecom companies including Airtel, Vodafone, Idea, Aircel, Reliance Communication (RCOM) have slashed the 3G prices heavily. How will this affect the Indian telecom market? Will it revolutionize the sector once again the way 2G tariff wars did? Will it result in higher profits for telcos or will it prove to be a dangerous move for them in long run? Pitchonnet probes further…

The tariff reductions
It all started about a month ago with Airtel slashing its 3G tariffs by 70 per cent. It slashed its volume based browsing on 3G network from 10 paise per 10kb to 3 paise per 10 Kb. The offer is for consumers who have not subscribed to 3G services. Within a week Aditya Birla Group’s Idea Cellular too slashed its 3G prices by 70 per cent and launched sachet packs, which allow users to use 30 mins of 3G data services for Rs 10.

Moreover, Aircel and RCOM jumped in this game with reduced tariffs and more attractive plans. Aircel marketed its price reductions as ‘3G at 2G prices’. It launched unlimited plans starting at Rs 8 a day to lure customers. Anupam Vasudev, Head Marketing, Aircel, says, “The 3G Aircel Pocket Internet Smart is an Industry first with an aim to offer a world of possibilities through the power of Internet at an extremely affordable price and thus empower the youth of the country”.

RCOM followed suit. But Vodafone has been the most aggressive in slashing the price as it has slashed its rates by 80 per cent offering 3G surfing at 2 paise/10 KB. Earlier, the usual 3G rate was 10paise/10KB for all operators.

Commenting on the price reductions official spokesperson from Vodafone India says, “The industry has seen a problem that there is an imbalance between 3G pack and pay-as-you-go (non-pack) pricing. As a result most customers opt for packs. There is an opportunity to correct this imbalance and the industry could hope for the sufficient elasticity of price to drive penetration and volumes to generate revenue.”

Unni Krishnan, MD, Brand Finance India

Low 3G penetration
Experts say that the telcos are trying to increase penetration of 3G services among consumers through the price reductions and we may expect further reductions and more attractive packs from the companies to lure customers.
Sample this: According to the industry the total number of 3G consumers in the country are a paltry 20 million, which is just 2 per cent of GSM subscriber base of 900 million plus.

In such a scenario telcos are looking at increasing the consumption of 3G through price reductions and are getting the volume game. Sanjoy Mukerji, Chief Commercial Officer, Vodafone India says, “With the introduction of these plans, we aim at establishing a foundation for providing a 3G data plan for everyone, making it affordable to the masses. Also, users who shy away from trying 3G services due to prohibitive costs can now experience services without the fear of a bill shock. The 2p/10kb PAYG and no additional charges for roaming are the first of its kind in the Indian market.”

Right move or Hara-kiri?
Some experts are of the view that these tariff tactics may help the telcos to get more consumers and boost their top lines in short term, but this may prove to be dangerous in the long run and leave them bleeding.

Unni Krishnan, MD, Brand Finance India says, “This kind of commoditisation of services is complete Hara-kiri in my view and the entire industry may suffer in the long run because of this. World over too we have seen such kind of short term tactics by telecom companies that has led the entire industry bleeding and some very strong players getting into big trouble.”

Price the biggest entry barrier
But at the same time some experts feel that this may prove to be a right move for India considering the uniqueness of this market. Keeping in mind the miniscule 3G consumers the key issue that the telcos need to tackle is the volumes. It logistically does not make sense to let the 3G population be at 2 per cent of the telecom population and so initiatives to increase 3G subscribers is the key challenge for these companies. And since research has shown that high prices are one of the biggest entry barriers that stop consumers to subscribe to 3G services, telecom players have to rationalise prices to seduce the reluctant consumers. But at the same time, the experts also warn that the telecom brands need to be cautious in their approach, lest they overdo this and repent later. “Some telecom brands have done this in the past at the time of 2G tariff wars and they are still paying the price for it,” says a source from a telecom company hinting at RCOM price wars in 2G.

Well, like any price wars in the country, this one too will benefit the consumers and will also increase the numbers of 3G users. But certainly, telcos will have to be cautious in their approach to ensure they boost their top lines along with their bottom lines and not at the cost of the latter.

About the author / 

Pallavi Srivastava

Principal Correspondent, Pitch

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