Telecom companies launch price war in data services - Economic Times

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MUMBAI: When Idea Cellular on Tuesday announced it was bringing parity in Internet connection charges for data on the advanced 3G and less advanced 2G technologies, industry experts said this is the shifting of price war from voice to data services.

The convergence of pricing for Internet access across 3G and 2G is bound to happen. Pack rates for 3G tended to be cheaper than 2G in absolute terms, because consumption at a higher speed is more, said Ambrish Jain, Deputy Managing Director, Idea Cellular.

Idea only cut headline rates and the packs remain unchanged, as was the case with Vodafone's cut two weeks ago.

With this move, whether it is 3G or 2G data, an Idea customer will pay only two paise per 10 kilobytes. While rate cuts and lower pricing for slower data speeds in 2G technology have happened, this is the second time a company has equated pricing in 3G and 2G. Since 3G is seen as a premium service, it was expected to yield higher margin for operators.

But given its slower than expected uptake, operators hope higher consumption will annul the lower price impact. Analysts said the move is indicative of another rush for subscribers with a short-term compromise. Kamlesh Bhatia, Research Director at Gartner, said, "It (data tariff cut) is to spur adoption. At some point in time, operators will hope to get power of pricing back in their in hand."

Reliance Communications was the first to offer 3G data plans at 2G prices in June. Its data plans are the cheapest in the industry while Bharti Airtel has the highest 'pay as you go' rates, though the packs are comparable with Vodafone and Idea. In May 2010, telecom operators paid a whopping Rs 51,000 crore in an auction for 3G airwaves — an amount that is now taking toll on the companies' profits as they could not generate commensurate revenues. In comparison, the all-India licence fee was Rs 1,650 for 2G airwaves.

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