The price war in 3G services is getting fiercer. After Airtel, MTNL, Aircel and Idea Cellular, it was the turn of Vodafone to announce a tariff reduction of up to 80 percent in 3G services on Tuesday.
Vodafone is introducing a ‘Pay As You Go’ (PAYG) rate for prepaid customers. The company said in a statement that this PAYG is now the most competitive and lowest in the market. At 2p/10kb, it is an 80 percent reduction from the existing rate and, additionally, Vodafone will now allow its customers to use data from their bundle package while on-net roaming across any location in India without any additional charge.
Last month, Airtel, Reliance Communications and Idea slashed their rates by 62-70 percent to entice more people to use 3G services, which allow for fast data transfer. The price cuts are an attempt to boost revenue as demand stagnates for voice services and 3G services experience slow growth. But they come just when the industry was expecting an end to a price war in the 2G voice segment, which pulled down the profit margins of most telecom operators.
But when telcos are screaming blue murder about the proposed new reserve prices for 2G and other spectrum bands, why are they cutting prices in 3G?
Analysts have said in the past that instead of lowering 3G tariffs, telcos need to raise rates since most of them have incurred debts due to investments in buying 3G spectrum. Moreover, with the auction of 2G spectrum around the corner, telecom companies need to raise money for bids.
Everyone is vying for the elusive 3G customer since the adoption of 3G services in India has been underwhelming so far, with subscriber estimates ranging from 25-39 million currently. Before Airtel slashed rates, BSNL and Aircel had also adopted a similar strategy. The growth of 3G has been slower than expected in India mainly because of the high prices of services. However, the availability of lower cost smartphones could well push 3G to the next level in the coming years.
Also, a well laid out 3G network is critical to the expansion of the coveted 4G services.
A player in lucrative circles which has 3G spectrum should have a better business case for LTE (4G technology) due to the possibility of an integrated offering of LTE and 3G. This is important as LTE will never have a footprint close to that of 3G and without this integrated offering the customer will see coverage holes in the network.
With 3G underlay these holes will not get noticed as the customer will fall back on 3G as soon as he is out of coverage of LTE, and will not face any significant loss of service as 3G in these areas will be lightly loaded.