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Nath Balakrishnan

IT is one more episode in a long-running soap opera that promises to give even Kyunki Saas Bhi Kabhi Bahu Thi on Star Plus a run for its money. No, we are not talking about another of the famed "K" serials from the house of Balaji Telefilms. This is the latest in the drama of telecom price cuts announced by the country's leading mobile operator, Airtel, and then by the state-owned telecom giant BSNL (Bharat Sanchar Nigam Limited).

Rate wars galore

It has been just a fortnight since the interconnect user charges regime was rung in. But the flurry of activity on the pricing front shows no signs of flagging. Close on the heels of Airtel and a couple of other operators slashing mobile-to-mobile long-distance charges to Rs 1.99 per minute, BSNL has upped the stakes further in the pricing battle by unveiling a plan that bills such calls at Rs 1.80 a minute.

If that was not enough, BSNL has now opened a new flank in the price war by reducing rates for value-added services such as SMS (short messaging service). By dropping prices to Rs 0.60 per message (others charge Re 1 or more), BSNL has only served to further encourage the addiction that SMS is.

All these measures have also sent a clear message to its rivals that BSNL means serious business in the cellular telephony space.

With additions to the cellular market happening at the rate of close to a million customers a month, the opportunity it presents is too much to let go of without a fight.

And BSNL is using pricing as a key lever of its strategy to attract a larger proportion of prospective customers into its fold. It is important that BSNL sustains this momentum as the industry moves into a consolidation mode a few years down the line. What does it take for BSNL to walk the talk?

Pricing power

Pricing will continue to be the key to lure more customers into the cellular fold. But an obsession with it, to remain a part of the customer's consideration set, can throw a spanner in the works. After all, the raison d'etre of an enterprise is to delight customers who come into contact with it. But, more important, is that the business is profitable. Price-cuts will continue to delight customers across the country, but they cannot go on endlessly if it is going to jeopardise the corporation's financial health.

If the market is to determine prices, the same yardstick should apply to BSNL when it arrives at its tariff plans across a range of services (both fixed and landline). BSNL has got its pricing act together in the mobile space. But it appears to be hamstrung by a combination of both political considerations as well as vested interest when it comes to arriving at tariffs for its landline business.

Tariff rollbacks

Take the recent rollback in the tariffs announced for fixed-to-mobile local calls. Under political pressure, BSNL was forced to revise its tariff for such calls from Rs 2.40 per minute to Rs 1.20 and also increase the number of free calls in both rural and urban areas. The consequence: The moves are expected to dent BSNL's bottomline by more than Rs 3,000 crore. BSNL cannot remain competitive when it is routinely forced to bow down to the dictates of the political class.

Intriguingly, the rates for landline-to-WLL (M) calls were left untouched at Rs 1.20 per 90 seconds. Considering that limited mobility is mobile telephony in a different avatar, it is only appropriate that calls to such phones be treated on a par with mobile phones than be bestowed with concessions. Pegging rates to such phones at Rs 1.20 per minute would have at least served to partially offset the losses that BSNL will incur as a result of the current rollback.

Second, one must not lose sight of the fact that both BSNL and MTNL have a rural obligation to fulfil, and operations in such areas are not exactly remunerative.

Private operators had the benefit of bidding for licenses, which gave them the option to cherry pick circles to operate in. Smart bidding on their part ensured that they were not saddled with unprofitable circles, a luxury not available to BSNL and MTNL.

In spite of the handicaps, BSNL has demonstrated that it is no slouch when it comes to confronting competition.

Had only the Government got rid of the practise of scrutinising and tinkering with its tariffs just to please certain political sections, BSNL's bite would prove to be as potent as its bark in the dog-eat-dog telecom market.

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