Cut in freebies to boost voice realisation per minute for telcos

While data has become cheaper, voice call ratse have substantially gone up since January this year

In the past couple of months, there have been few rounds of cuts in data tariffs across 2G, 3G and 4G, primarily to boost revenue from data services. While data has become cheaper, voice call rates have substantially gone up since January this year.
 

There have been three rounds of tariff hikes — in January, March and May this year. However, most of the companies did not increase the headline. Instead, telcos have substantially reduced offering discounts through special tariffs vouchers and first recharge vouchers. Such special vouchers allow subscribers to make calls at discounted rates which are normally much below the headline tariffs. 
 

With the first recharge vouchers for normal customer acquisition, the tariff was at 1.2 paise per second. Now, as companies stopped offering the first recharge vouchers, this has now gone up to 1.5 paisa per second, according to a recent analysis by PhillipCapital. In some cases, it has increased to two paisa per second. Base tariff has also increased by 20-65% on case to case basis in the three rounds of tariff hikes, it noted.

 

Realisation to rise

 

According to a recent analysis by global equity research unit of UBS, telcos are expected to report atleast one% rise in voice realisation per minute during the April-June quarter this fiscal year. Some analysts have said it could improve by 1.5%. Voice realisation per minute has been stable for the past five quarters.
 

As telcos have reduced freebies, the growth in voice realisation per minute is expected to sustain for a longer period. This is also because the competition has become more rational, it noted. At present, the industry average voice revenue per minute is expected to improve from the present level of 35 paise per minute.

According to a report by rating agency Fitch, telcos have regained the pricing power by gradually increasing tariffs over the past few months. The gradual increase in voice tariffs, however, is positive for the industry as there has been a prolonged period of price-led competition betweeb 2008 and 2012 that had eroded profitability. Fitch has also noted that the industry monthly churn rates are also likely to decline by 3-4% from 8-9% in 2012.
 

More voice minutes on network

 

There have been about 6,500 crore minutes have been freed annually after small operators had to close operations in India or in most of the circles, following the Supreme Court order cancelling 122 licences for alleged irregularities in spectrum allocation in 2008.
 

This would benefit incumbent operators like Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications (RCom). As estimated by UBS, incumbents are expected to add about 24,500 voice minutes in fiscal year 2014, which is an addition of about 27%.
 

Vodafone, which is the second largest telecom operator by subscriber base in India, has reported 4.5% sequential increase in its voice revenue per minute and a three% increase in volume.

 

Most of the analysts have estimated 1-1.5% rise in voice revenue per minute for Indian operations of country’s largest telco by subscriber base Bharti Airtel and the third largest Idea Cellular during the April-June quarter.
 

And, increase in realisations would result in a jump in profit margin. Kotak Institutional Equities has estimated a 70-90 basis points increase in profit margin for Bharti Airtel and Idea Cellular on the back of 1.3% rise in revenue per minute.

Following Vodafone results, Goldman Sachs has noted that Bharti Airtel’s revenue from mobile services in India is expected to grow by 3.6% during the April June quarter compared to 3.2% in the previous quarter.

Idea Cellular’s mobile services revenue is estimated to increase 5.5% during April-June quarter as compared to 8.6% in the pervious quarter, it added. Vodafone’s India mobile revenue grew 8.5% during April-June quarter while it reported a 4.7% increase in the previous quarter.