Price wars started by Tata Teleservices. Impact and solutions

Tata Teleservices might not realize but it has started something it may regret in future. “The price war”. TTSL has made a overall loss of about 2500 crore in FY2009. Compare it to others like Airtel (Approx 2100Cr profit in third quarter) and Idea (Approx 1000 cr profit in third quarter). TTSL holds 8% of the telecom market share. The latest move of price slashing is a desperate attempt to gain market share. And it has.

For two continuous months, TTSL has topped the new subscriber increase rate. This prompted first Aircel, then IDEA (in some circles) followed by Airtel and now Reliance to charge 1 paisa/second call rate.

Per second billing: It makes sense to have such a billing system where consumer does not have to pay for time he/she did not talk. However, 1 paisa/second makes little sense to me. OK, it is 60 paisa/minute. So whats the big deal???? The big deal is that inspite of lowering of rates, the average time a person spends on phone has gone down by 7%. Some people argue(they have a point) that it is because of the inflated connections shown by the telecom companies in India. This also leads to ARPU of Rs. 70/new user these days.

One thing is clear to me: I am in for per second billing. But 1paisa/second makes no sense to me. As a shareholder of many of these companies, I want them to make profits for me every quarter, and this move may erode the top line of the company affecting bottom line too.

So I propose differential pricing. Lets say, for first 30 seconds you would be charged 3 paisa/second and after that 2 paisa/second. Therefore, a person who talks for 1 minute pays Re 1.5, 90 paisa for second minute and 60 paisa thereafter. Thus average rate goes down as he talks for a longer period of time. This gives you incentive to talk more. :)

Price War: I am not in for this. Sorry guys. It does not help the industry. In marketing e were taught the concept of EVL (Economic value line). Price wars leads to shifting of line downwards which leads to loss of the industry as a whole.

Effects of Price War

Increased barrier to entry: There are 13 telecom players in India right now with a few more eyeing lucrative market. However, this price war has lead to increased barrier of entry.

Consolidation in next 3-5 years: I am sure next 3-5 years will see consolidation in the industry and prices moving up again.

Future of Tata: I wish them best of luck. They have the momentum right now, both with number of new subscribers and losses. I would love to see you afloat (Attention Mr. Ratan Tata, How much loss can you allow your beloved company to make???) in next 5 years, you endorsed one of my favourite celebrity couple once and your “Hello Hello” campaign was a genius. ATB