News From Telecom World

Reliance triggers another price war in Indian mobile subscribers market

Posted on: February 17, 2009

Reliance Communication’s move to slash its GSM rates by about 50% on Thursday could trigger yet another price wars in the Indian mobile
market.

But, a recent study by Lirneasia deduces that such a move is not likely to make a significant dent in telcos’ existing subscriber base. Lirneasia is a not-for-profit information and communication technology (ICT) policy and regulation capacity-building organisation working in nine South Asian countries.

The organisation’s third survey on mobile users at the bottom of the pyramid (Teleuse@BOP3) shows that the most cost sensitive subscriber segment has reached a stage where it is driven more by service offering, brand loyalty and number retention than by price discounts.

“Lirneasia’s findings have always been very credible, and their present study seems to make sense too,” said cellular operatos association of India director general T V Ramachandran.

In the survey, 37% of the BOP respondents in the survey said they would not even consider switching to a cheaper package, while only 15% of them said they would shift. The rest of the respondents remain undecided.

“There could be reasons varying from brand loyalty to pure convenience, for this response. But, it is possible that those factors are gaining importance only because the subscribers take it for granted that their our service providers are bound to follow suit in slashing prices,” said Lirneasia CEO Prof. Rohan Samarajiva. “After all, India has the most competitive mobile market in the world.”

Lirneasia’s senior research fellow Payal Malik had published the Herfindahl-Hirschman Index (HHI) – the index for market concentration – in the telecom markets of South Asian countries, last year. Lower the HHI, higher the competitiveness in a market.

India’s turned out to be the lowest at 2000, as compared to Indonesia’s 3400 and Thailand’s 3900. Among the western markets, USA’s stood at 2529 and UK’s at 2309. In fact, India’s competitiveness is close to the US anti-trust guidelines’ threshold for market trustworthiness – a HHI between 1000 and 1800.

“With that level of competition, the assumption that price cut by one telco will be followed suit by all its counterparts in the market is valid,” Ms.Malik said. “So, it can be expected that RComm’s move will mark yet another nosedive in our mobile tariffs.”

But, whether that happens or not the BOP survey indicates that RComm’s target low ARPU segment is not likely to shift from its existing service provider. “But, RComm GSM is likely to create a new subscriber base from the presently ‘unconnected’ lot through their rock bottom tariffs,” Ms.Malik said.

About 40% of the BOP respondents who would not even consider shifting their service provider said that the reason for saying so was that they did not want to change their number. “So, introduction of number portability means the pricing becomes more aggressive and competition more cut-throat,” Mr.Samarajiva said.

Ironically, stiff competition among telcos seems to be breeding customer retention rather than attrition in the Indian mobile market.

Source: Economic Times of India

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