RCom raises call rates by 25percent, others may follow suit

Reliance Communications, India's third-biggest mobile phone carrier, raised call prices by a quarter in four service zones and said it will extend the hike to all zones in the next 30 days, sending its shares to a two-month high.

Reliance Communications increased the base call price to 1.5 paisa a second from 1.2 paisa, the company said in a statement on Friday, citing rising costs and lower competition.

A court order to revoke permits of several smaller rivals will significantly reduce competition in the cut-throat Indian market, giving operators such as Bharti Airtel and Vodafone's local unit room to raise call prices.

"We have seen on ground competition tapering off. Hence we need to restore back the price," Gurdeep Singh, chief executive of Reliance Communications' mobile business, told Reuters.

"From our experience in the four zones where we have implemented it already, this is very much sustainable. We see another round of tariff hike in the next one year," Singh said in a phone interview.

Voice calls account for about 85 percent of Indian telecoms sector's revenue. A vicious price war in a market that once boasted 15 operators had led to sharp drops in call prices in 2009-10.

Shares in Reliance Communications were trading 3.7 percent higher at 59.60 rupees in Mumbai at 0707 GMT. The stock earlier rose to 60.20 rupees, its highest level since July 24.

Bigger rival Bharti jumped 3.5 percent and Idea Cellular was up 1.7 percent on speculation that other telecom companies will follow Reliance Communications' move.

Net debt

Reliance Communications said the call price increase would help improve revenue and margin per user.

The company, burdened with net debt of $6.4 billion, has underperformed major rivals in operating performance.

An analyst said he did not expect the price increase to immediately translate to higher revenue per minute and that it was early to say if its rivals would follow suit.

"In past attempts, we have noticed that telecom companies have found it extremely difficult to enforce market discipline with respect to pricing," said Vivekanand Subbaraman, telecoms analyst at MF Global Sify Securities in Mumbai.

All major carriers increased call prices by about 20 percent in the middle of last year - the first tariff hike after two years. Companies including market leader Bharti were later forced to pare the increase in some zones as they lost customers to rivals offering lower prices.