Reliance Communications was perhaps first off the block with tariff increases, its just that the media got whiff of Bharti Airtel and Idea’s hikes on Wednesday, not RCom.
In a conference call with analysts today, RCom CEO Gurdeep Singh said rates on special tariff vouchers and recharge coupons of RCom have been increased from the first week of January, when free minutes on the network have also been reduced. He did not specify the quantum of increase but said this is not the only increase in tariffs. Singh said that two to three more tariff hikes could happen across the industry in the next 12-18 months, now that competitive intensity in decreasing and costs are on the increase. So is it time you talked less and met up more!
The tariff hike, though important for all telcos, is specially crucial for RCom since this means the company can look forward to an increase RPM (realisation per minute) in the next two quarters of anywhere between 2-3 paise. And over the next 12-18 months, this could mean 6-8 paise RPM increase.
In their note to clients after RCom declared results for the December quarter on Wednesday, Amit Sharma and James R Sullivan of JP Morgan pointed out that RCom reported 2 percent quatter on quarter increase in Average RPMs which was on expected lines as the company had announced tariff increase in September. In September, RCom had become the sole telecom operator to increase base tariff to 1.5 paise from 1.2 paise across its network.
But the two analysts also said overall December quarter metrics for RCom remained weak.
“Total minutes/volume increase of 0.5% quarter on quarter remained weak. As per AUSPI data (an industry association), RCom subscriber base decreased about 12% quarter on quarter (from 134.8 million to 118.5 mn in the December quarter) primarily due to deactivation of inactive subscribers. As a result, estimated ARPUs and MoUs increased by aboout 14% and 13% Q on Q respectively….Overall, third quarter operating metrics remained weak in our view.”
News of RCom’s tariff rationalisation comes just a day after Bharti Airtel and Idea Cellular also announced tariff increases in promotional offers but underlined the fact that there is no increase in headline tariffs. A Business Standard story this morning spoke of an increase in effective tariffs on special value vouchers by between eight per cent and 25 percent.
It also pointed out that companies have also reduced the validity of lifetime recharge vouchers for pre-paid cards—by nearly half in some circles—and increased the threshold limit that consumers have to pay for full-talktime plans. Vodafone hinted it would soon follow suit. The BS story said if all telecom companies were to increase prices, the 360-million pre-paid customers in the country would have to pay more. There are a little over 900 million mobile customers in India.
But in a chat with Firstpost after the concall with analysts, RCom’s Gurdeep Singh said that with the tariff rationalisation in early January, “Initially only those customers will be affected who are already talking two to three times more than the average user and abusing the network.”
He said for long, telcos have been offering services below cost and the attempt from now on would be to migrate customers closer to profitable yield for the telco.
The BS story quoted earlier said that Average RPM had dropped by more than half from 2007 — from an average Rs 1 a minute to 42-44 paise a minute for incumbent telcos and as low as 20 paise for new players. This sharp fall was primarily due to cut-throat competition, which led to an increase in free minutes, high churn, and increasing distribution margins. Now, with telcos taking the first tentative steps to raise tariffs, the Average RPM should improve.
Singh said this is not the first tariff increase RCom has taken – it had increased the base rate from 1.2 paise to 1.5 paise in September and there has been no deactivation of connections because of these two successive tariff increases.
Yet another interesting fact emerged from the concall. Singh acknowledged that Reliance Infratel, the tower arm of RCom, is in advanced stages of negotiation with three potential partners for a large infrastructure deal though he declined to specify if Reliance Industries is one of them. Reliance Industries is the only pan-India 4G spectrum owner and has been looking to rent telecom towers to begin offering voice over its 4G network. A CLSA report said earlier this week that an RCom-RIL deal was “inevitable” and that RIL’s 4G service roll-out is expected in 2013.
“And its best option remains to lease towers from Reliance Infratel. Incremental tenancies will improve RCom (Reliance Communications)’ financial health and accretion to FY14 CL (consolidated) Ebitda (earnings before interest, depreciation, tax and amortisation) is likely to be significant by 10-15 percent”.
In case a deal for renting telwcom towers does go through and is not done at any significant discount, RCom could benefit in the sense that it will ease RCom’s debt burden.