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Data Tariff Cuts Will Not Impact Telcos’ Revenue

The recent tariff cuts announced by telecom operators will not impact revenues as volume growth in data usage will compensate for it, according to analysts as reported by BusinessLine.

“We expect mobile revenues to grow by over 8 per cent for Airtel and 13 per cent for Idea in 2016-17 driven by strong growth in data traffic despite falling yields,” said analysts at UBS.

The data realization in terms of rupees per MB will reduce by 13-15 per cent over the next 2-3 years, strong data traffic growth of over 60 per cent will lead to data revenue growth of over 35 per cent in the same period.

Recently Trai, in its frequent call drop test, found most operators fail to meet service quality benchmark. The tolerance limit for call drops is 2 percent which means 98 percent calls made on a network in a quarter should be completed and not get disconnected automatically added Trai. (Read full story here)

Telecom operators have contested the tests and said they are compliant to benchmark at overall circle level and that Trai’s test does not give correct picture of their network performance.

Read Also:Major Telcos’ Subscriber Base Crosses 776 Mn Mark In June

Airtel and Idea have announced substantial cut in pre-paid data tariff that allows users to consume 25-67 per cent more data on their pre-paid internet packs. This move comes ahead of Reliance Jio launch to pre-empt any subscriber loss and to improve capacity utilization as lot of capacity has been created with accelerated 3G/4G rollout in the last 6 months, UBS said.

“We also believe increasing mobile data affordability will further fuel mass market adoption as more subscribers will enter data users category driving strong data traffic growth, subsequently flowing through to telcos in the form of data revenues,” it added.

New tariff plans announced by Airtel and Idea Cellular offer more data for the same price, which essentially protects their average revenue per user. Since Reliance Jio4 coming with the new strategy for the network market it will focus on offering more data at the same price rather than lowering ARPUs, as such a move would impact their ability to garner a return from its business.

Read Also: Telcos Demand Review Of TRAI’s Order On Data Pricing

“We expect incumbents to match RJio’s tariff by also offering more data at the same price. Such a move could lead to a ‘capacity war’, not a ‘price –war’,” said Merril Lynch, analyst in a report, adding that among the existing operators, Airtel is best positioned to handle higher capacity on its network.

“For Bharti/Idea, while we expect pressure on implied data tariffs, we do not expect too much pressure on ARPU. We also find that Jio’s aggression should help consolidate the tail and expect the incumbent telcos to gain some low-end subs as the tail consolidates,” it said.

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