Govt says won't allow 3G roaming pacts

A man speaks on a BlackBerry mobile phone inside a shop in Kolkata January 31, 2011.

NEW DELHI (Reuters) - The telecoms ministry will tell carriers they won't be allowed to offer 3G services outside their licensed zones through roaming agreements with each other, the telecoms secretary said, adding to uncertainty about regulation in the industry.

The government sold 3G airwaves in an auction last year that attracted much higher bids than expected, and no single company managed to get spectrum in all of the country's 22 zones.

The development is a blow to Bharti Airtel (BRTI.NS), Vodafone's (VOD.L) India unit and Idea Cellular (IDEA.NS), three of the country's top four carriers, which currently provide 3G services beyond their licensed zones through roaming pacts.

"Decision is clear that this is not permitted, and that is being conveyed to the companies," R. Chandrashekhar, the top bureaucrat in the telecoms ministry, told Reuters.

The ministry has not yet decided whether to impose penalties against the companies, he said.

Bharti and Idea declined comment, while a spokesman for Vodafone India said he could not comment immediately.

The move adds to uncertainties in the once-booming sector, which is being hurt by fierce competition as well as a probe into a massive telecoms licensing scandal.

Bharti shares closed 1.8 percent lower, after falling as much as 5.3 percent on the news. Idea closed 1.3 percent down, after falling as much as 5.4 percent.

The government, which raised $13 billion in the 3G auction, is in the process of overhauling its decade-old telecoms rules but there is little clarity on key issues, including pricing of second-generation spectrum and mergers and acquisitions.

FLEDGLING 3G SERVICES

Companies launched 3G services earlier this year and are currently expanding networks to cover more towns and villages.

But the take-up for premium services, which facilitate faster Internet browsing on mobile phones and services such as video calls, has been slower than expected. Smartphones account for only about 5 percent of the total mobile handset sales.

Premium data services currently provide a small fraction of the revenue of Indian carriers but the companies see huge potential for growth, with less than 10 percent of India's 1.2 billion people having access to Internet.

Margins from data services are also far higher than those from voice.

Last month, top executives of the Bharti, Vodafone India, Idea and sixth-ranked carrier Tata Teleservices TATASL.UL wrote a joint letter to Telecoms Minister Kapil Sibal saying they understood that the 3G roaming arrangements were legal and permissible before they placed bids for 3G spectrum.

"Any determination now that this might not be the case would fundamentally alter the legal and economic basis on which the business case for 3G bids were evaluated, inevitably leading to a requirement to either refund to the bidders or re-run the auctions," the letter said.

Bharti spent $2.3 billion to win 3G permits in 13 of the 22 zones, while Vodafone paid $2.2 billion for licenses in nine zones and Idea got 11 zones for about $1.1 billion.

(Reporting by Devidutta Tripathy; Editing by Ted Kerr)