Shrinking tariffs and falling handset costs have made Indian telecom subscribers the most pampered lot. Though it has resulted in a declining average revenue per user (ARPU) for service providers, they are not complaining as yet.

According to analysts and industry watchers, while the price cuts would lead to initial losses, they would be mitigated in the long run as the market matures and volumes increase.

The country adds 6.5 million subscribers every month, making it one of the fastest growing telecom markets in the world. However, the industry's ARPU, which measures the money that an operator gets from each subscriber, has fallen steadily to about Rs 370 a month at the end of March this year, a fall of Rs 30 from the last year.

With free incoming calls and outgoing call charges as low as Re 1 to 40 paise a minute, the ARPUs are expected to fall further. It is ironic that mobile call rates are now cheaper than landline costs, as it is costlier to set up mobile infrastructure.

After a spate of handset price wars, the cheapest black-and-white handsets (Tata Teleservices, priced at Rs 770) and colour handsets (Reliance Communications, costing Rs 1,234) are now available in the country.

According to Tata Teleservices (Maharashtra) CFO S Venkatesan, the Tatas have subsidised handsets by an average of Rs 700 a piece, but this is usually recovered in 6-12 months.

The war has now moved to the pre-paid segment, with BPL Mobile offering free lifetime incoming calls for Rs 444, at a time when the lowest in the country was at Rs 666. Most other GSM providers have slashed their rates to Rs 495 for lifetime incoming calls.

S P Shulka, president (personal business), Reliance Communications, said there was a price elasticity that worked in favour of companies.

"A reduction in rates brings in new customers. This also prompts existing subscribers to use more airtime and services, resulting in an increase in the call volumes. These moves rake in more revenues for operators," he said.

All service providers have been recording a rise in minutes of usage (MOUs) despite a fall in ARPUs.

A Cut Above The Rest

• Cut in lifetime tariffs
• BPL Mobile Rs 444 (from earlier Rs 666)
• Hutchison-Essar Rs 495 (from earlier Rs 999)
• Idea Cellular Rs 495 (from earlier Rs 999)
• Bharti Airtel Rs 495 (from earlier Rs 999)
• Reliance Comm Rs 499 (from earlier Rs 999)

Slash in handset prices

• Reliance Communications launched B&W handsets from China's ZTE Corporation priced at Rs 777
• Tata Teleservices reduced prices of its existing Motorola B&W handsets by Rs 80, making it the cheapest at Rs 770
• Reliance Communications launched colour handsets priced at Rs 1,234 (lowest existing price is at around Rs 2,250)