Thursday 24 January 2013

Airtel and Idea hike voice call charges

Two of India’s leading mobile service providers, Airtel and Idea, have increased voice call charges by 100 percent. Reuters reported that India’s No. 1 mobile service provider Bharti Airtel doubled call rates from Re 1 to Rs 2 per minute. The company is also reducing free minutes by up to a quarter and has increased prices of call vouchers for prepaid customers by Rs 5 to 15. Idea Cellular has also raised call prices in some zones by withdrawing promotional offers, but there was no across-the-board increase. Following Airtel’s cue, Idea hiked call charges from 1.2 paise per second to 2 paise per second.

The price increase comes as mobile service providers in the country have to pay billions of dollars in surcharges after the Indian government overhauled the system of spectrum sales. The government plans to sell airwaves through open bidding in two month's time, four months after the first revamped spectrum auction. The minimum bid price at the March auction is set at more than six times the previous fees set by the government before the overhaul.

Airtel released a statement announcing the hike in charges. “We have been reiterating that increase in prices is inevitable, which is reflected from the fact that despite rising costs, tariffs have been falling over the past 12 quarters,” the statement read and went on to explain that the revision in prices is in line with increasing costs. The call price increase will be extended to all of India’s 22 telecommunications zones in phases.

The move sent shares of telecommunication companies soaring as investors bet that rivals will follow the market leader. Airtel’s shares rose more than 4 percent after the news. "Part of the tariff hike is driven by cost pressures and also it is sort of a pre-emptive move in order to improve financials because we have got a major auction coming up," Harit Shah, a sector analyst at Nirmal Bang Equities Pvt. Ltd told Reuters.

This latest move to increase prices may not adequately stymie the declining profit trend at Bharti Airtel, but it could be a sign of things to come as companies grapple with higher regulatory fees and other costs. However, there is no certainty that the new rates won’t be rolled back at a later date. A similar move in 2011 was thwarted by the market as companies lost market share. India’s mobile telecom market was crowded with 15 players at one point. Competition is now easing after several smaller operators either folded up or scaled back operations, following a 2012 Supreme Court order to revoke their permits.

Earlier this month, Airtel had hiked tariffs for 2G data services, increasing the price of the 1GB 2G data plan from Rs 100 to Rs 125. Vodafone too had announced a hike in the monthly data plan charges and had reduced data limits for several prepaid plans. However, India’s No 2 carrier declined to comment on the hike in voice call charges.

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