Telecom price wars turn intense by the 'second'

By Devina Joshi , afaqs!, Mumbai | In Marketing | December 15, 2009
Is 'one paisa per second' as low as it gets? Or, will one see the emergence of the third and fourth decimal in pricing, when it comes to the hugely competitive telecom industry in India? And will consumers turn agnostic at some point? afaqs! explores

Per second billing, at the dirt cheap price of one paisa. What Tata Docomo started as a differentiator a few weeks ago is now a common sight in the tariff plans of nearly all telecom players - big and small - in India, be it Aircel, MTS, Idea, Reliance, Vodafone, Airtel or BSNL. Recently, MTNL went a step ahead and launched the 'half paisa per second' tariff plan. Terms like 'Diet SMS' (one paisa per character) are suddenly gaining momentum.

With prices seemingly at an all-time low in the telecom space in India, one wonders where the ball will roll next. afaqs! speaks to experts in the branding arena to understand this commoditisation of telecom: where the price war is headed; what will follow next; and most important, whether consumers even care for such severe divisions of currencies in the telecom world - fractions that don't even exist outside of it.

& #BANNER1 & #As low as it gets

The concept of per second billing isn't altogether new. Orange (now Vodafone) had launched it a few years ago in the UK, but definitely not at the kind of price points Indian telephony is now privy to. The strategy was beneficial for Orange, as its ARPU (average revenue per user) was high.

In India, however, the last three quarters show steadily declining ARPUs for telecom players. In such a scenario, there is obviously high reliance on bringing in the volumes, so that low profit margins caused by low pricing could be evened out.

As Harish Bijoor, chief executive officer, Harish Bijoor Consults, puts it, "Price is the ultimate envelope to push for the telecom industry; and players have got it right with the 'per second' route. But this will only become more and more ridiculous." This could mean the 'half paisa' route (which MTNL has already forayed into) or 'packet second' routes - where a cluster of seconds are packaged together at a very low price.

Furthermore, denominations that have gone out of vogue, such as the 'anna', will probably be brought back. "One could have communication on the lines of 'Rediscover the value of money once again'; something about going back to the good old days when everything cost so little," Bijoor muses.

The probability is that prices would be commoditised even further - festive pricing, group pricing, pricing for family/friends and bundling of offers; alongside, cross-selling with other categories, such as movies, credit cards, or earning free talk time by shopping at a mall, could also take place.

However, with the complexities of such tariff plans, won't the task of communicating these to consumers become an additional headache for telecom players? Kiran Khalap, co-founder, chlorophyll brand and communications consultancy, reveals that as per research conducted by chlorophyll, post-paid customers rate convenience higher than prices. But the pre-paid consumer's mindset is a different one - such customers know all the details of various plans/bundles, both for their brand as well as that of the competition.

"Communicating complex bundles to this mentality is no great barrier," Khalap says.

Hence, telecom operators could come up with innovative bundles/slabs; for instance, for a certain amount per call, one gets 120 calls free and gets charged Re 1 for the next 150, and so on. Further, telecom will continue doing what it does best - tell half-truths by projecting the larger picture, the '1000 minutes free' (with conditions) kind, adds Khalap.

Low: good to go?

Such low pricing, although incredible, could actually serve a purpose for consumers, particularly in the case of international roaming, as this is one area where even a slight reduction in prices makes a huge difference to consumers.

Furthermore, low prices would also make sense when mobile number portability steps into India (around December end), where discount prices would play a key role in ensuring that people don't switch their service provider.

The impending entry of large players such as UniNor, Datacom and Etilsalat-Swan Telecom is another factor to be considered. Brand consultants foresee that these new players will target the 'second customer', or the individual who is looking for a second connection - for instance, one for business and one for personal use. Virgin homes wouldn't be profitable in this case, as their ARPU is low.

"It's like newspapers…a new newspaper cannot grow at the cost of an existing leader; instead, it tells people they need two newspapers. The big brother syndrome will enter this category," Bijoor says, adding that the low pricing factor is here to stay for another three or four years.

According to Nabankur Gupta, founder and CEO, Nobby Brand Architects and Strategic Marketing, the telecom space now has a level playing field on price. Prices couldn't go down any further; the next step would be to make it free, he muses.

But several experts feel that low pricing alone cannot bring in the volumes to sustain profit margins, unless it is backed by great quality of service. "I think if a telecom player offers 1.5p per second, but with a better service/network than the 1p per second players, he will win," Gupta explains. What he's probably referring to is the fact that many of the players who have jumped on the low price bandwagon, don't have the critical mass/top quality service required to be profitable at such low prices. In such cases, there is a distinct possibility of customers becoming agnostic or indifferent to a low price claim.

"These price points can't be profitable in the long run, not with the current volumes and not until rural India is completely covered. Maybe VAS (value added services) is what telecom players will rely on to compensate," Gupta feels.

Communication needs are huge in this country and the affordability factor of telephony is low; so the only way to bridge that gap is to bring down prices and have VAS pay for the difference.

The newspaper industry is a classic comparison to make, where ad revenues, more often than not, beat subscription revenues. Similarly, with ARPU going down, texting and VAS (including gaming and entertainment) are likely to fetch operators the green bucks. Possibly, telecom's growth could come from convergence, or from serving non-telecom needs.


According to Kumar Ramanathan, chief marketing officer, Vodafone Essar, with over 250 tariff plans in the country today, the entire market is gravitating towards 'headline' pricing (competitive 'branding' of a price bundle); and this, when pricing as a strategic sustained advantage probably doesn't exist in telecom. "It's not like selling soap, where an expensive soap spells premium in the minds of consumers. In telephony, 'premium' implies better customers on your network, and better quality of usage," he shrugs.

To the biggies like Vodafone, new players have been left with no option but to come up with such prices, but their network and distribution is only a fraction of the incumbents. "The only thing left for them to do is competitive pricing in the hope for volumes," Ramanathan adds. "But even then, in today's scenario, subscriber addition is no guarantee to revenue growth."

Suresh Subramaniam, vice-president, Percept/H (the agency on BSNL), feels that big players with larger volumes of subscribers are the ones who will actually profit from such a business model. "The smaller ones will bleed, as efforts like these will end up looking like a gimmick," he says. "After all, no one will change their mobile numbers because of such tariffs. When number portability comes in, that is when the choice of service provider will play a crucial role."

But Tata Docomo, the present day frontrunner in discounting mobile telephony in India, has a different mantra. Abdul Khan, advisor to the managing director and head, GSM marketing, Tata Teleservices, tells afaqs! that the plot for Docomo was not to be the cheapest. "It is less about price and more about fairness/transparency. The philosophy of the offering - why should one pay in minutes when one is using only seconds - is more important than the offering itself," he says.

KS Chakravarthy (Chax), national creative director, Draftfcb Ulka (the agency on Docomo) adds, "Our brand won't stay on one proposition for too long. Per second billing and Diet SMS are quickly being followed up with other products. It's about respecting a consumer's right to pay for what he uses."

Chax concludes that the tonality and brand halo are important cues in the telephony space, now more than ever.