The radio ads on air say it bluntly — you’d be a fool to not snap up this deal. And certainly, Reliance Communications (RCom) seems intent on making 3G consumers an offer they can’t refuse: it has halved 3G data charges across all plans, bringing its rates on par or even lower than what some operators charge for 2G. Consumers using 3G on RCom can now get 1GB data at ₹123, where Bharti, Idea and Vodafone charge ₹125 for 1GB on 2G technology and ₹245-250 for similar usage of 3G. That’s great news for users and perhaps RCom is justified in thinking it will add new subscribers by the droves, but does the deal make business sense for the telecom major?
Casting the net wide
RCom has aggressively priced its 3G
tariffs at par with 2G rates
A little over three years ago, mobile operators paid staggering sums for 3G spectrum. While RCom forked out ₹8,585 crore for spectrum in 13 circles, Bharti Airtel paid ₹12,295 crore for the same number of circles. The recovery of this investment depended not just on getting in a large number of subscribers but making them spend well on 3G services as well. So far, that’s not happening. Currently, barely 5% of the total 850 million mobile users are 3G users with an average revenue per user (Arpu) of just ₹60 in Q4FY13; net additions every month, too, are only around 2 million. In comparison, voice Arpu for Bharti Airtel was ₹193 for the same period and ₹167 for Idea.
Rajiv Sharma, associate director, HSBC Securities, says it will be challenging for RCom to recover spectrum costs. “Our analysis suggests that post the tariff cuts, it will need to have around 200 million data subscribers using at least 400 MB to have a NPV-positive 3G business,” he explains. Current numbers are nowhere close to that, although RCom has the highest number of 3G subscribers, 7.2 million, followed by Bharti with 6.4 million.
And while low tariffs will make 3G plans more attractive to subscribers in category B circles, which have been slow to adopt the technology, a bigger hurdle is the need for 3G-compatible handsets. “Data faces a challenge from the device to be used,” concurs Sashi Shankar, chief marketing officer, Idea Cellular. Certainly, handset prices have been coming down steadily, but 3G smartphones are still more expensive than 2G ones.
Besides, he adds, “Operators like us need to not only get in more 3G users but also get more out of the existing base.” A recent Nokia Siemens Network report says that after the pan-industry drop in 3G tariffs last year, 3G services accounted for a third of total mobile data in H2CY12, compared with a fourth in the first half. The takeaway for RCom? If its offer not only lures in new users but tempts existing subscribers into surfing more, perhaps the party won’t be completely one-sided.