RCom to overhaul pricing model; VAS at Re1 a day

Reliance Communications Ltd. | Telecommunication - Service Provider | Telecom | BSE: 532712 | NSE: RCOM

18 Jun 2009 Evaluate

Reliance Communications Ltd (RCom), the country’s second largest mobile phone services operator, is overhauling its pricing model to offer value-added services (VAS) such as caller tunes, news alerts and Internet surfing for as low as Re1 a day, rather than for a monthly subscription.

RCom now plans to roll out a series of initiatives including live streaming of cricket matches and Formula One car races as well on mobile phones. RCom hopes to reach a wider audience for its VAS by offering customers more price flexibility in using the services. RCom expects 15-20% of its revenue to come from VAS and data services over the next three year. Indian cellphone companies typically earn 9-12% of their revenues from VAS and data services. In countries such as Japan and Korea, VAS contributes as much as 30% to a cellphone operator’s total revenues.

A recent survey by consultancy firm KPMG in 19 countries shows that Indian consumers are increasingly willing to experiment with new mobile services. KPMG survey showed that 86% of Indian respondents were likely to watch live TV on mobile phones in the next 12 months while mobile commerce applications continue to face challenges in gaining wide acceptance.

However, there is some scepticism about the success of mobile VAS in the short-term in spite of several drivers because of a scarcity of spectrum in congested areas, especially in large cities where most of the demand for VAS is expected to come from also affordability of devices and services in semi-urban and rural markets remains questionable.

Telecom players recognize that increase in VAS revenues will be an important aspect of future growth and profitability. Players in the value chain are innovating and focusing on increasing the market size for their products and services. Average revenue per user, a key metric in the cellphone industry, from VAS may not grow immediately due to the reduced prices, but would rise significantly over the long term since the entry price is low.

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