Vodafone India Drops Roaming Fees As Much as 75%

In advance of mandates to lower roaming fees, Vodafone India has cut voice roaming fees as much as 20 percent, and text messaging rates as much as 75 percent. That is good for consumers but will hit mobile service provider revenues.

The rules on roaming fees are but one example of the profound impact regulators can have on communications markets, both enabling and shaping private actor decisions that directly affect end user welfare.

Investors and service providers also are speculating about what bottom line and top line impact might result from the recent Indian spectrum auctions that generated record $17.4 billion in spectrum costs for mobile service providers.

Observers say India’s carriers may have to raise prices (either for voice, or data, or both).

“While the costs of the industry are massive,” the average revenue per user (per month), or ARPU, of Indian telecom service providers is $2.96, compared with the international average of $35 to $40, according to the Cellular Operators Association of India.

The cost of acquiring spectrum in the recent Indian mobile spectrum auction were high enough that Bharti Airtel, Idea Cellular and Reliance Communications may take a sharp hit to earnings in 2016 and 2017, driven by interest charges on borrowed money spent to acquire spectrum, analysts estimate.

And most observers say retail end user costs are certain to rise, as the capital investment has to be recovered.

Bharti Airtel’s net profit could drop eight percent, starting in April 2016, US brokerage Morgan Stanley estimated. that would be mild, compared to what could happen at Idea Cellular and Reliance Communications.

Idea Cellular could see earnings before interest and depreciation drop 27 percent, while Reliance sees a plunge of 26 percent.

India’s Airtel provides more evidence that a mainstay product in the telecom industry--mobile voice--is following its cousin fixed network voice along the classic product life cycle.

Airtel's voice revenue per minute of use dipped 2.4 percent, compared to the prior quarter, while average revenue per user also fell in the quarter ending in March 2015.

Overall revenue grew 31 percent, year over year, due to mobile data revenues, counteracting the revenue pressure in the voice business. That also is part of a global trend, namely that mobile access to the Internet now is the revenue growth driver in many markets.

Idea Cellular, the third-largest provider by subscribers,  also reported a three percent quarter-on-quarter decline in voice revenue per minute.

The trend is long standing. Prices have been falling since at least 2007. Likewise, data revenues have been growing since at least 2006, in the Indian mobile market, while voice prices have declined almost steadily since then.

Some have criticized the Indian government for making government revenue a bigger priority than creating conditions where service providers can aggressively extend service. Calling taxes and charges “excessive,” outgoing Vodafone India CEO Marten Pieters said Vodafone pays 30 percent of gross revenue to the government.