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Sistema takes mobile tariffs to a new low
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Telecom tariff war continued with Sistema Shyam Teleservices (SSTL) offering mobile call charges as low as half-a-paisa per second, a denomination that never existed in the history and still hoped to cover costs in three years that even the CEO of world’s biggest mobile operator, Vodafone, believes may be difficult.

The 0.5 paisa per second offer from the Russian-controlled company immediately triggered a reaction, though in a limited way. Rival company Loop offered calls at 10 paise per minute, translating into 0.16 paisa per second, for calls between its subscribers. Vodafone Essar is expected to follow with a similar tariff and others too may join.

“Half-a-paise pricing may, at best, attract bottom of the pyramid subscribers, leading to continued pressure on profitability for the operators for long time to come,” said Alok Shende, principal analyst at Ascentius Consulting.

“There is a notion that price war can lead to market share gain.” Telecom companies are desperately trying to win customers in this country of about 110 crore people, half of which, at least, statistically own a mobile phone and the remaining barely in a position to eat a square-meal-a-day. The entry of Japan’s DoCoMo in a joint venture with the Tatas accelerated the price war that has squeezed profits and investors sold stocks. Bharti Airtel, Reliance Communications and Idea are among the worst performers in the stock market this year even as the index is set for record gains.

“We continue to believe that we will break even in three years,” SSTL president & CEO Vsevolod Rozanov said at a press conference in Mumbai on Wednesday. “This pricing has been built into our business plan.” SSTL, which offers services under the MTS brand, is charging local calls to any networks and STD to MTS numbers at half a paisa per second. STD calls to other networks will be charged at one paisa per second. While messages to MTS numbers across India will not be charged for and the rate will be 20 paise for other networks.


Whether SSTL gains business traction as planned remains to be seen, but it could hurt competitors, say analysts. “The USP of MTS is zero rental,” said Sanjay Chawla, senior analyst at Anand Rathi Financial Services. “The service seems to be targeted at low-end users as per-second billing is more suitable for people making shorter calls. Among the incumbents, Tata and RCOM’s CDMA businesses appear to be more vulnerable to the MTS offering.” It may be good news for customers, but not for management.

“This kind of tariff war could make the situation for even the top players, such as Vodafone Essar difficult,” Vittorio Colao, CEO of Vodafone, said in a recent interview. “This year, in India, Vodafone had a £350 million operating profit in the first six months and we investing £1 billion, and therefore, we will be negative. No player in India, other than Bharti Airtel, has positive cash flow.”

But SSTL is betting heavily on data offerings to boost its revenue and profits. “SSTL has unparalleled capacity to provide high-speed data services, which offer significantly higher ARPUs (average revenue per user per month),” Mr Rozanov said pointing to Rs 700 ARPU from data. SSTL is offering download of 15 GB data for free for the first month as part of initial offer for Mblaze, its data service. Sistema has invested $1.5 billion in Indian operations till now and is targeting to be a national player with presence in 22 circles by 2010.

It has estimated another billion dollars investment to begin operations in the remaining 13 circles. “However, that budget may go up depending on requirements,” SSTL CFO Sergey Savchenko said. The tariff gamble may not lead to a permanent gain even in market share, say analysts. “That does not guarantee subscriber loyalty,” said Rajiv Sharma analyst at HSBC Securities and Capital Markets. “As and when prices are raised, subscriber market share could suffer,” he said.

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