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Why Indian Telecom Operators Are Increasing 2G Data Tariffs

(By Apurva Chaudhary & Nikhil Pahwa)

Telecom operators such as Bharti Airtel, Vodafone and Idea have hiked up 2G data tariffs by almost 30 percent to cover costs and improve margins, reports PTI (via Firstpost, reported first by TelecomTalk), reporting that other operators might follow the suit as well. However, no communication has been sent to customers by Bharti Airtel.

Vodafone will offer its 1GB 2G monthly data plan for Rs 125, which earlier was priced at Rs 99 per month, as will Airtel and Idea. Similarly, telecos have also further reduced data caps of other 2G data plans. Last year, Vodafone and Airtel had reduced the data cap to 1GB from 2GB on their 2G data pack worth Rs 99 per month.

It’s worth noting that telcos have not increased volume based browsing rates on 2G, which remains at 10 paise per 10kb. What’s interesting is that telcos now offer volume based 3G data for as low as 3 paise per 10kb, which makes volumes based browsing more cost efficient on 3G.

Why telcos are increasing tariffs

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– 2G Data Plans Not Profitable: In August 2012, in an interview with MediaNama, K Srinivas, President of Bharti Airtel‘s B2C business unit, had mentioned that telecom operators were losing money on 2G data services, saying that 2G data is underpriced, and significantly underpriced. “…tell me one country in the world which gives you 1GB for $2?

– Shift from 2G to 3G not sufficient? The idea was perhaps to use 2G data like a gateway drug: price it low to allow users to start using it, and transition them to 3G services, which are priced higher. It’s likely that for many users, 2G connections are sufficient, and they may not be willing to upgrade to 3G, which is why telcos are now looking to monetize existing data connections. An increase in 2G data rates might increase the propensity to switch to 3G. Last year Airtel, Vodafone, and Idea had reduced 3G tariffs to attract more customers.

The Tricky Spot That Telcos Are In

A significant percent of subscribers have now experienced Internet on mobile, but having invested substantive money in 3g and data, telecom operators need more data subscribers. Data messaging apps such as Whatsapp and social networking sites such as Facebook & Twitter are at the center of this transition – telcos are using tie-ups with these to encourage data usage. We have seen telcos come up with a customized Whatsapp and Facebook data packages. Recently, Reliance Communications had launched a prepaid plan ‘WhatsApp Plan’ that offered unlimited usage of WhatsApp across the country for Rs. 16/month. In December 2011, Airtel had offered free access to Twitter for a period of three months. In May 2010, Reliance Communications had tied up with Facebook to offer free mobile browsing on 0.facebook.com, a light-weight mobile version of the popular social networking website.

At the same time, data based messaging is eating into telcos SMS revenue, which led to Airtel also increasing its SMS plan tariffs by 300 percent (as per a  report in Telecomtalk): SMS plans which used to offer 3000 SMS per month now offer only 1000 SMS per month. This might encourage subscribers to shift away from SMS plans to data messaging apps, but also help increase the SMS revenue.

Mobile Internet usage apparently surpassed Desktop Internet usage in India during April-May 2012.

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Does The Hike Impact Usage?

A question: to a mobile Internet user who is now used to consuming services on smartphones, will this hike result in an increase in usage? Would user behavior change if mobile Internet tariffs were doubled? Would they change if rates are tripled? At least for those with heavy usage of the Mobile Internet, and subscribed to fixed data plans, we think not. Telco’s have the ability to increase rates further. As long as a user feels that a pay-per-use plan will be more expensive, he wont shift. What can change things is if there are options to use Wifi for data frequently, in which case the pay-per-use option might be cheaper.

Also read:
On Whatsapp, Its Telco Relationships In India & Other IMs

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