Location Based Tariff Plan from Telenor in India
Uninor, which is a joint venture between Norway’s Telenor and India’s Unitech, came out with an innovative tariff plan to attract subscribers in a highly competitive Indian market. In this market, competition intensity has meant lower tariffs but Uninor has introduced the dynamic pricing where customers would be offered 5-60% discount based on traffic on the network. The traffic would be function of location and time at which they call. The discount would change on an hourly basis and the discount available at any moment will be visible at all times on the screens of handsets that display cell broadcast. When the call ends, a flash will appear on the phone screen indicating the actual discounted cost of the call. Discounts are calculated by a sophisticated ‘Discount Engine’ that relies on state-of-the-art IT systems to continuously monitor traffic at every tower in the network. This plan is called ’24X7 Badalta Plan’ which in English means ’24X7 Changing Plan’.
Many analysts have dubbed this plan as a revenue depleater. They suspect that the effective call rates would fall and this is another way of triggering tariff war. However, I differ in the assessment and feel that this plan has a potential to increase usage. Anybody who needs to call would call irrespective of the time and place but if the user sees 50% discount flashing on the screen, he would be tempted to call-out to his friends or family. I would not be surprised if this plan leads to overall increase in ARPU due to higher minutes of usage.
Uninor has already outsourced its network and in case of managed services, the payment is made on peak capacity. This means that the increased utilization in off peak hours is at no extra cost till the time it does not cross the peak capacity. This effectively means that any increase in usage would go straight to the bottom line and hence the EBIDTA of this plan would be very high. If Uninor customers do not make call in the peak hours and wait for the discounts then Uninor pay outs would come down on account of lower peak capacity in future. This way it is a win-win situation. Operators have tried to give incentives for usage in non peak hours like night usage at half price but the pricing has never been this dynamic.
Another benefit of this plan would be ability of the operator to offer differential pricing in rural and urban areas. The capacity utilization is low in rural areas. The dynamic pricing of Uninor would offer higher discount in rural areas and lower discount in urban areas. This would not only help fill up the rural network but also help Uninor differentiate itself from other operators in the lucrative rural market.
The location based pricing is a radically new concept and it would be wrong to dismiss it as yet another means of lowering tariff. Having acquired the ability of monitoring the network utilization by tower on a real time basis, Uninor would be in a position to collect consumer data on the price elasticity which would help it in designing better plans. Most of the operators struggle with questions around price elasticity when it comes to plans aimed at increasing usage. I for one would be interested in tracking the success of this plan.