New Front Opened in India's Mobile Tariff Wars

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The price war in India's mobile services market took a new dimension on Friday, with Reliance Communications charging 0.01 Indian rupees (US$0.0002) per text message.

Other operators are expected to counter with similar tariffs for text messages sent by SMS (Short Message Service).

The drop in SMS tariffs follows a dramatic drop in the tariffs for voice over the last few months. Many operators are now offering voice tariffs starting at 0.01 Indian rupees per second. Earlier tariffs were typically fixed for a minimum of one minute or multiples thereof.

Before the cut by Reliance, SMS rates were in the range of 0.50 to 1 rupee per message.

Reliance also announced another plan that allows customers to send an unlimited number of SMS messages for 1 rupee per day. Some subscribers prefer SMS over voice, Reliance said.

India has seen a price war in the mobile market as established operators like Bharti Airtel, the largest mobile services provider, and Reliance Communications, the number two in the market, attempt to gain market share ahead of service rollouts by new operators including the joint ventures in India of Etisalat and Norwegian operator Telenor.

The price cuts and expansion by operators into less lucrative rural markets have affected their revenue and margins. Bharti Airtel reported reduced revenue and profit growth in the quarter ended Sept. 30, as call durations and average revenue per user dropped, even though the number of subscribers increased. Reliance also reported revenue had grown by 1 percent in the quarter, but profits fell by 33 percent from a year earlier.

Mobile operators are now turning to value-added services as a way to boost revenue and margins. The mobile VAS market in India is set to grow at 16.6 percent each year until 2015, Frost & Sullivan predicted this week.

A number of operators have introduced services such as Internet and mobile entertainment. But value-added services still account for about 10 percent of operators' revenue. Bharti Airtel's revenue from non-voice services, for example, was 9.8 percent of revenue in the quarter ended Sept. 30, down from 10 percent in the same quarter last year.

Operators expect to boost revenue in the long term through higher volumes, and penetration of mobile telephony in the country, analysts said. About 42 out of 100 Indians had mobile phones at the end of October, according to data released last week by the Telecom Regulatory Authority of India.

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