Airtel hikes 2G data rates as operators look to improve margins: Report

It was long expected. Aiming to improve margins and cover costs, Bharti Airtel has hiked its 2G data tariffs, prompting other telecom operators to follow suit in near future. Is it time to switch to 3G?

                 

Amid speculations of telcos passing on the burden on subscribers due to the inflated licence and infrastructure costs, Bharti Airtel has fired the first salvo by raising its 2G data rates. The other major service providers such as Idea Cellular and Vodafone are likely to follow suit soon. The move is believed to help operators cover costs and improve margins.

The Times of India in its report notes Airtel has raised the price of its 1GB 2G data by 25 percent, which means for 1GB data Airtel customers will now have to shell out Rs. 125. Earlier, the plan was priced at Rs. 100.

Bharti Airtel says the latest hike is subject to "rate elasticity, customer demand and supporting cost structures", echoing its chief executive (India & South Asia) Sanjay Kapoor's recent assertion that the companies will have to raise pricing of voice and non-voice service in a bid to ensure a sustainable telecom industry. The company has however not commented on speculations of raising 3G data rates.

Vodafone may also look to follow the footsteps of Airtel. "We are aware of some of our competitors increasing tariffs for 2G data recently. We see this as an encouraging step for industry and are taking corrective measures accordingly at our end," a Vodafone India spokesperson is quoted as saying.

As per an estimate, 2G data contributes up to 3-4 percent of operators' revenue. Analysts believe 2G data business generated about Rs. 577 crore revenue for Airtel during quarter ended on September 2012, considering Airtel's revenue for the period was about Rs 14,419 crore.

On that basis, Vodafone made Rs. 700 crore in the first six months as its revenues during that period stood at Rs. 17,418.9 crore. For Idea, 2G generated about Rs. 212 crore to Idea during the three months ended September 2012 when its total revenues stood at Rs. 5,314 crore.

Analysts, however, don't find the hike in 2G data tariffs unexpected. "The mobile phone companies have already hit rock bottom and further decreases were simply unsustainable. 2G data is booming relative to 3G, largely due to the prevailing low tariffs but also the large pool of feature phones out there. This will change over time as entry-level smartphones start getting traction," says telecom analyst Ovum's principal telecoms analyst Shiv Putcha.

The analyst also notes 3G data revenues will take over 2G data revenues in the near future. "I don't expect increases in 3G data rates in the near term although this will largely depend on what happens with LTE pricing once Reliance comes online," added Putcha.

With majority of users still using 2G data, the hike is certainly going to have a huge impact. Perhaps, users may look to upgrade to 3G, which is available at competitive rates. With the expansion of 4G LTE in major circles expected this year, 3G prices may dip further.