New Delhi: Bharti Airtel, India's top mobile phone carrier, said it has raised voice call prices to account for rising costs, sending shares of telecommunication companies higher as investors bet that rivals will follow the market leader. Idea Cellular, country's No 3 carrier by revenue and No 4 by customers, also said on Wednesday it had effectively raised voice call prices in some parts of the country after withdrawing promotional offers. It gave no details.
The price increases come as mobile phone carriers in India face billions of dollars in airwave surcharges after the government overhauled its system of spectrum sales in response to a massive scandal in 2011 over an alleged below-market-price sale of permits and airwaves three years before. The government will sell airwaves through open bidding in March, four months after the first such auction, with the minimum bid price at both auctions more than six times the previous fees set by the government.
"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," said Harit Shah, a sector analyst at Nirmal Bang Equities Pvt. Ltd.
Shah said he expects moderate increases in future prices, which could put pressure on call volumes. "India being a price-sensitive market, I don't think you should assume no impact on usage," he said.
The market of nearly 900 million customers, the biggest after China, has not seen a sustained increase in call prices in the last three years after a vicious price war sent call rates tumbling in late 2009. There is no certainty the new rates will stick. Operators dialled back a 2011 increase when they lost market share.
Bharti Airtel said in a statement it did not increase headline tariffs but reduced promotional benefits and free minutes offered to customers, adding that the price change was in line with the increase in its costs. While the latest move to increase prices may not be sufficient to reverse declining profit at Bharti Airtel, it is at least a sign of things to come as companies struggle with higher regulatory fees and other costs, analysts said.
Shares in Bharti Airtel ended 4.5 per cent higher. Idea shares rose as well but ended 0.64 percent higher, while Reliance Communications Ltd ended with gains of 0.51 per cent. A source familiar with the matter separately told Reuters that Bharti Airtel is reducing free minutes by up to a quarter and has increased prices of some call vouchers for prepaid customers by 5-15 rupees (10 to 30 cents).
The price increase will be extended to all of India's 22 telecommunications zones in phases, the source said, declining to be identified because the information was confidential. Reliance Communications, the country's third-biggest phone carrier by customers, raised some voice call prices last September.
A company spokesman did not offer any immediate comment when asked if they were planning a further increase. A spokesman for Vodafone's India unit, the No 2 operator, declined to comment.
Voice calls account for about 85 per cent of industry revenue, with mobile data still at a nascent stage. But call rates are some of the lowest in the world, often less than 1 cent per minute, squeezing profits at operators.
The good news is competition in a market once crowded with 15 players is easing after several smaller operators either folded or cut back operations, following a Supreme Court order last year to revoke their permits. Still, the market has seven national operators, a large number by global standards, and more could emerge as the government gears up for airwave auctions. The industry has long been ripe to consolidate, but tight rules and uncertainty over regulations have deterred deals.