Videocon will offer services at 25% below current market rates, analysts
fear another price war
NEW DELHI: Mobile operator Videocon, which won back airwaves in six
regions in the November spectrum auctions, will offer voice and data services
at about 25% below current market rates, its chief executive and director,
Arvind Bali, told ET.
The Gurgaon-headquartered company's move could trigger yet another
tariff war in India's mobile telephony space, similar to those of 2009-10 when
new entrants destroyed the industry's pricing power and sent its profits
plunging. Videocon's plan also comes at a time when mobile tariffs have
troughed, operators are rationalising discounted minutes and gradually
increasing call rates.
On whether the company's strategy could destabilise the domestic
industry, Bali said the group's traditional strength in sectors such a consumer
durables was its pricing power. "We have to play to our strength."
VideoconBSE 0.23 % has also decided against outsourcing the management
and maintenance of its networks to equipment vendors, a practice generally
followed by leading mobile phone companies in the country. Bali said executing
these functions in-house would be more economical. Its competitors — BhartiBSE
-2.72 %, Vodafone, Idea and Reliance CommunicationsBSE -0.27 % — have signed
multibillion dollar outsourcing contracts with network vendors, IT firms and
business processing units.
Bali said the company would not participate in the upcoming third round
of spectrum auctions, but would only look at expanding its footprint.
Videocon plans to provide voice and fourth generation (4G) data services
simultaneously when it begins operations with Gujarat later this year. This is
possible as auction rules allow operators to offer any form of mobile service
on their allotted spectrum. According to Bali, about 40% of commercially
deployed networks on 4G long-term evolution are on the 1,800 MHz spectrum.
In 4G data services, Videocon will be eventually compete with Reliance
IndustriesBSE -0.08 %, the only company to have bagged 4G airwaves on a
pan-India basis in the 2010 sale process. But Reliance Jio Infocomm has 4G
spectrum in the 2,300 MHz band, the ecosystem for which is yet to take off.
In comparison, Bali said that LTE device ecosystem for the 1,800 MHz
frequencies was already 150 strong. This band, which has traditionally been
used for second generation (2G) voice services, is witnessing strong evolution
towards LTE, Bali said, adding that 50% of the global chipsets volumes will
support fourth generation services in this frequency by 2015-16.
Videocon was amongst the worst affected when the Supreme Court in
February last year quashed 122 permits because of alleged irregularities in the
2G spectrum auction in 2008.The company lost its pan-India permits. It then won
back airwaves in six circles — Haryana, Madhya Pradesh-Chhattisgarh, Gujarat, UP
west, UP east, Bihar and Jharkhand for Rs 222 crore.