Pay-per-call: Another ‘lose-lose’ move from Tata Teleservices?  

The mobile service offered from the house of Tata was never known for aggressive marketing. However, this time around, Tata Teleservices has come out with a plan with the potential to start an immediate price war. Tata Teleservices, which provides CDMA mobile services, has launched a new plan called "pay-per-call", which would charge a fixed amount for a single call irrespective of its duration.

 

Under the new plan, CDMA subscribers of Tata Teleservices would pay Re1 for any local call and Rs3 for calls outside the city, irrespective of the duration. New subscribers need to pay Re1 per day to avail this offer while existing Tata Teleservices subscribers need to make an additional one-time payment of Rs96, the release from the company said. It, however, does not specify how long this ‘special offer’ is valid for.

 

At present the call rates across the industry are in the range of Rs0.50 to Re1 per minute for local calls and Re1 to Rs1.50 per minute for national long distance (NLD) calls. 

 

The new offer from Tata Teleservices, however, is not completely unexpected. According to reports, Tata DoCoMo, the newest entrant in the GSM mobile space, has been receiving very good response from subscribers for its pay-per-second plan, shown by the 2.26 million new additions to its subscriber base in July. Tata DoCoMo’s plan is in contrast with the "pay-per-minute" plans offered by other GSM operators, which may have helped the company to gain a foothold in the crowded mobile services business.

 

About 80% of the new subscribers from Tata DoCoMo could be subscribers switching from existing operators or using multiple SIMs or handsets. New launches initially focus on high-ARPU penetration geographies and therefore are less likely to acquire first-time users, says Motilal Oswal Securities Ltd, in a report.

 

Minute-based billing results in granularity benefit of about 15% to 20% for operators, but Tata DoCoMo has been passing on the same to subscribers, in order to gain market share. Other operators however have not replicated the pay-per-second billing plans.

 

So the question remains, why has Tata Teleservices introduced this new pay-per-call offer? One reason is to increase and retain its CDMA subscribers, who were likely to shift to Tata DoCoMo's pay-per-second plans. Second, as per the new spectrum criteria decided by the Department of Telecom (DoT), the spectrum an operator can get would be decided by the number of its subscribers, which has been forcing the operators to make an extra effort to retain subscribers or inflate the subscriber numbers.

 

India's mobile user base has risen 25 times over the past five years and research firm Gartner expects it to touch 737 million by 2012. In July, a whopping 14.38 million wireless subscribers were added by mobile operators taking the total wireless user base to 441.66 million in the country.

 

"Tata Teleservices' new offer is likely to be a loss-making one. Since interconnect cost per minute is Rs0.20 for local calls and Rs0.60 for NLD calls, Tata Teleservices stands to lose money, once the call duration exceeds five minutes," says Anand Rathi Financial Services Ltd, in a report.

 

"The daily fee from new subscribers joining Tata Teleservices or the one-time payment from the existing subscribers would not materially alter the economics of this offer,” the report added.