Jan 15, 2009

Business - India;RCOM's GSM foray triggers price war in pre-paid segment

Durba Ghosh

NEW DELHI: Reliance Communications’ (RCOM) entry into the GSM space has triggered a price war in pre-paid segment as Airtel, Vodafone and Idea
have slashed tariffs on several entry-level schemes.

RCOM launched its GSM services across the country in December 2008 and is now present in eight telecom circles. The CDMA operator has entered the GSM space with aggressive pricing by offering a lifetime pre-paid for only Rs 25. In some circles, the operator has offered free talk-time worth Rs 900 spread over three months. RCOM used the low price-point strategy during its CDMA foray too, offering handsets bundled with its cellular services at Rs 501.

"In the coming weeks, we will launch more pre-paid and post-paid plans offering maximum value suited for various other customer segments of the GSM market," RCOM president (wireless) SP Shukla said.

Taking note, GSM operators have also sprung into action on the pricing front. For instance, Bharti Airtel has reduced prices of a new lifetime connection to Rs 99 with a minimum recharge option of Rs 200 in 6 months. Vodafone and Idea, too, reduced the entry price for new connections. Vodafone has slashed the costs for lifetime-prepaid schemes to Rs 199 compared to Rs 270 earlier. The telco has, however, done away with lower tariff charges offered earlier on such connections. Similarly, an Idea Cellular user can now buy a lifetime prepaid connection for Rs 199. The two telcos are also learnt to have increased the payouts to retailers on selling new connections.

“RCOM has created a low-price environment and all operators including Idea have responded optimally to it. We will make sure that we remain competitive even with entry of new players,” Idea Cellular chief marketing officer Pradeep Srivastava said. However, the company is unlikely to cut tariffs on existing schemes, he added.

Some GSM operators, however, say the tariff cut has nothing to do with the launch of GSM services by RCOM. “We have slashed prices on the lifetime–prepaid cards for the benefit of start-up users in rural and semi-urban areas, not because we want to counter RCOM’s strategy. We will continue to transfer value to our consumers as long as it makes business sense,” said Bharti Airtel chief marketing officer (mobile services) Sanjay Gupta.

As per industry analysts, RCOM’s offer is essentially a launch strategy aimed at enticing prospective customers to sample its services. "RCOM’s launch will trigger a tariff war to keep off churn but it will not have any significant impact on the existing players as users are reluctant to shift. This may be a quicker route for RCOM to make itself eligible for additional spectrum," said consultancy firm Comfirst director and telecom analyst Mahesh Uppal. As per DoT guidelines, new GSM operators reaching a subscriber base of 0.5 million are entitled to receive additional spectrum of 1.8 MHz

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