Tata Docomo to play pricing game in 3G too

The first private player to launch 3G in India is averse to calling it a premium service. Will the strategy work?

Tata Docomo’s new 3G ad has been asking consumers to keep their hearts racing for a new experience. The hearts will possibly race faster now as the company, on Wednesday, lived up to its promise of becoming the first private operator to launch 3G services in India.

The more important reason, however, is that Tata Docomo is offering a special Diwali gift to its subscribers in nine circles — experience 3G for free for the next seven days.

Such freebies are not surprising from a brand which sought to remove its late-mover advantage in the GSM space in July last year by disruptive innovation — offering tariffs at one paisa per second — a move that triggered a huge churn in the market. The more established players first dismissed it and then were quick to follow suit.

The joint venture between the Tatas and Japan’s NTT Docomo is trying to do the same this time round too, the only change being that this time it has teh first-mover advantage among private operators. Vodafone Essar, for example, is planning to roll out 3G services only by the first quarter of next year. And India’s largest mobile operator, Bharti Airtel, is gearing up to launch the services by the end of the year in the 13 service areas where it has won 3G spectrum.

Tata Docomo’s 3G strategy is simple. While other operators have given such services a ‘premium’ label, Tata Docomo says it does not believe in that philosophy. “3G does not mean we have the right to call it premium services”, says Anil Sardana, MD, Tata Teleservices.

So the company will have specific schemes to “incentivize” 3G usage so that consumers pay less if usage increases. Sardana talks about “competitive tariffs” without revealing his exact pricing plans. “We will frame a plan after understanding usage in categories like video chat or mobile TV”, he adds.

Observers, however, say Tata Docomo has been first off the block among private operators mainly because of its small size. The company has 3G spectrum in circles like Karnataka, Kerala, Madhya Pradesh-Chhattisgarh, Rajasthan, Gujarat, UP (West), Punjab, Haryana and Maharashtra.

But, adoption and usage of 3G services will initially be highest in metros with huge urban population – something which established operators like Bharti Airtel, Vodafone and Reliance Communication will do. “The initial advantage of Tata Docomo will be gone when these big players come in,” sauys an analyst.

The company, however, is unfazed. Tata Docomo, which paid Rs 5,864 crore for spectrum in these circles, says that it would cover 51 per cent of Indian towns with a population of over a million and 60 per cent of towns that have over half-a-million people. Additionally, its footprint covers 55 per cent of households with an annual income of over Rs 3 lakh, and 49 per cent households in the SEC A+B category.

Sardana also says that since no operator has the licence to provide 3G services across the country, all of them would eventually form joint ventures with operators to offer services seamlessly.

ARPU Worries
Tata Docomo’s move to introduce the one paisa-per-second tariff when it launched operations in July last year has helped it to have a subscriber base of around 50 million. But the fact is that the move has also reduced margins for operators across the sector.

Analysts say that the average revenue per user (ARPU) for new telecom companies would be much lower than that of established players. Also, new telecom companies with reduced tariffs first attract a lot of consumers who enter the network for the best bargain, but exit as soon as they find a better discount.

So it’s debatable how long Tata Docomo can play the pricing game. The company says 3G, which is a high-end value added service, will surely have a positive effect on ARPUs. “If a consumer uses 3G applications, it will increase the share of his wallet with us,” says Sardana, adding he expects to see an average 10-15 per cent increase in mobile bills because of 3G usage.

“As we offer 3G on tablets as well, the number of downloads will increase,” says Deepak Gulati, Executive VP-mobility, Tata Teleservices.

The other USP that the company is harping on is the technology prowess of NTT. “We are able to complete the ramping-up of our network to support the 3G services due to the 3G-ready network we created at the time of our 2G launch itself, last year. Our 3G rollout across all nine circles will be completed this year itself,” Sardana says. The network also supports high definitiion voice (HD Voice) for a superior voice experience on calls.

All the existing 2G SIM cards are 3G-enabled and the customers can migrate to 3G services from tomorrow provided they have 3G handsets.

The company knows it has a tough task in terms of educating consumers about 3G to encourage trial and usage. “We are not focusing in terms of land grabbing, but asking them to genuinely understand applications and adapt accordingly,” says Sardana.

To facilitate this, Tata, which has the largest footprint in retail stores amongst telecom operators, is turning 4,000 of its stores in nine circles to make them “experience stores” where consumers can walk in and get a firsthand experience of services like video SMS, video streaming, mobile television, ultra-high-speed data transfers, route-finder, and live aarti.

(With inputs from Bangalore bureau)