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Split over tariff war

The ongoing price war in the telecom sector has started taking its toll. While older companies such as Bharti Airtel and Bharat Sanchar Nigam Ltd (BSNL) say that the existing tariffs are below their costs, new firms such as Tata Teleservices and Uninor say they would make profits at the current tariffs, reports Manoj Gairola.

business Updated: Dec 08, 2009 21:42 IST
Manoj Gairola

The ongoing price war in the telecom sector has started taking its toll. While older companies such as Bharti Airtel and Bharat Sanchar Nigam Ltd (BSNL) say that the existing tariffs are below their costs, new firms such as Tata Teleservices and Uninor say they would make profits at the current tariffs.

Price wars began in June 2009 when Tata DoCoMo launched its GSM service in Chennai. It offered a ‘per second’ billing to its customers, charging 1 paise per second for local and STD calls made to any network. All other operators followed.

Then the entry of MTS further intensified the war. The company introduced a tariff plan with 0.5 paise per second billing.

Presently, there are about 10 players in the market making India one of the most competitive markets in the world.

“Increase in competition has led to a price war and there is a pressure on revenues,” Bharti Airtel Deputy CEO Sanjay Kapoor told Hindustan Times.

“There has to be an end to the ongoing tariff war,” said R.S.P. Sinha, CMD, MTNL. “It is not sustainable for any company in the long run.”

“The existing prices are much below cost,” said a BSNL official who didn’t want to be quoted. “New companies have nothing to lose. They have no subscriber base so they can do anything to acquire subscribers.”

“There is pressure on margins due to low tariff,” said Kuldeep Goyal, CMD, BSNL. “In view of this, a consolidation is bound to take place.”

New operators, however, say that their prices are cost-based.

“The tariffs offered by us have been thoroughly thought out and make perfect business sense,” said Anil Sardana, managing director, Tata Teleservices.

“For Uninor, our low-cost, no-legacy model will allow us to be competitive and yet preserve the business case --- the only way to succeed in a hyper-competitive market,” said Stein-Erik Vellan, managing director, Uninor.

“The price war will impact the companies’ profitability in the immediate quarters but not for long as these kind of price wars can’t sustain beyond two to three quarters and in the long term, companies will be profitable,” said Aseem Dhru, CEO of HDFC Securities.

With inputs from Sandeep Singh