Voice and data tariffs to undergo transformation
Deloitte predicts that voice and data tariffs will need to be rationalised in 2013 to sustain the telecom industry. Operators will leverage on innovative pricing strategies and launch new tariff plans to position themselves competitively in the industry.
Voice and text revenues are declining or becoming stagnant but operating costs are increasing exponentially. An increasing number of operators and the implementation of regulatory policies like mobile number portability lead to increased churn rates. The likely, loss of almost 10% of revenues from loss of inter-circle roaming charges will further hit the operators in 2013. Competitive pressure and price wars are forcing operators to reassess the pricing of voice and data services.
Source: Company quarterly reports
Although consumers are signing up for mobile broadband in record numbers, often encouraged by flat-rate pricing, networks are becoming congested and are either running slowly or denying access entirely. Data traffic is not translating into equivalent increase in average revenue per MB. Also, the quality of service has gone down in order to comply with the new EMF radiation norms. Poor quality of service translates into poor user experience. Unhappy customers are voicing their displeasure – but seem unwilling to pay more to improve service.
Source: Company quarterly reports
There is a strong need for more rational pricing, especially in the mobile market. Firstly, this is forcing operators to move away from unlimited plans and promotional offers. Secondly, this is pressing them to consider an increase in the tariffs in urban areas to compensate for the rural operations.47
However, Deloitte expects that the tariff hike will be gradual in 2013 - either in the form of removing discounts or increasing tariffs nominally, so as to prevent a sudden drop in volumes due to a significant hike.48 This trend has already begun with many operators discontinuing the promotional offers and freebies.49 They are gradually increasing the voice and SMS tariffs of both, prepaid and postpaid plans, to support network infrastructure upgrades.
The consensus view on global data pricing has been that the only way to attract subscribers is to offer unmetered data. Moreover, the consensus also suggests that once made, the offer of unmetered data pricing can never be withdrawn without enormous customer backlash.50 However, Deloitte predicts that in 2013 network operators in India – both wireless and wire line – are likely to stay away from unlimited data pricing plans and become stricter towards fair usage policies. Specifically, ‘power’ users will almost certainly be billed for how much data they use, and may be even charged for when they use it and also what kind of data is being used.
Moving away from “unlimited” is only the first step – a key question is what kind of metering will work best. Should charges be similar to utilities such as water or electricity?
On the other hand, a pure metered “pay per byte used” could dramatically reduce revenues for carriers. Many service providers offer tiered service, with various caps on total bits used in a billing period. But, once these caps are exceeded, each additional bit can be prohibitively expensive or the speed is likely to be drastically reduced to few kbps. These coverage charges may make sense from the carrier’s perspective as they create an incentive for the consumer to opt for more expensive plans. However, it leads to unhappy customers either due to bill shock or due to poor user experience after the capped usage.
In order to stop the subscriber loss and to grow market share, Deloitte predicts that in 2013 operators will be leveraging on innovative pricing strategies to position themselves effectively against their competition.
For example, recently an operator had launched a unique ‘All Share Postpaid Plan’, which allows up to 10 members within a family or group to enjoy free sharing of voice, data and SMS on a single bill.51 Having one contract, stops users from picking different tariff plans from different operators and also helps providers to acquire and manage a single account instead of separate subscriptions, eventually reducing subscriber acquisition and management costs.
Also to develop targeted services and tariff plans, operators will increasingly leverage on the customer analytics, which provides a more detailed view of the customers’ usage patterns, leading to new revenue sources.
Continuous innovation in the telecom sector has enabled operators to provide telecom service to people at lowest tariff rates. Operators have been continuously reducing CAPEX and OPEX through innovative business models (outsourcing core network operations and network sharing) and marketing service offerings (per second billing, bundling offers, micro-prepaid).
50 After backlash, Time Warner shelves pricing change, Newser, 16 April 2009: http://www.newser.com/story/56395/after-backlash-time-warner-shelves-pricingchange.html