3G roaming ban may affect Bharti Airtel, Vodafone and Idea Cellular the most
Moneylife Digital Team 23 December 2011

The Indian government now wants to declare 3G roaming pacts as illegal but kept mum in July while Bharti Airtel, Vodafone and Idea were signing agreements to share 3G spectrum

The ministry of telecommunication has said that mobile operators would not be allowed to offer third generation (3G) service while in roaming across circles. Telecom secretary R Chandrashekhar had said that 3G roaming pacts between telecom operators are illegal and it should be annulled. Although the government has not said anything about imposing penalty for the pact, but if they decide to cancel or disqualify the roaming pact, then it would adversely affect Bharti Airtel, Idea Cellular and Vodafone, say analysts.

“We believe this move would hurt mobile operators providing 3G services. With the implementation of this move, these three companies will lose around 2%-3% of roaming voice revenues,” said KR Choksey in a note.

Earlier in July, Bharti Airtel, Vodafone and Idea Cellular entered into agreements with one another to offer 3G mobile services in circles in which they did not succeed in getting spectrum in the auction held last year. Bharti and Vodafone have won licences in 13 circles while idea has won 11 circles.

According to BRICS Securities, the cancellation of 3G pact between the three companies would have a limited impact on their topline. “If the 3G pacts are cancelled, we do not expect any significant impact on revenues in FY12-13 as the revenue share from 3G services is currently less than 2% and we expect it to remain below 4% till FY13-14 at least. Bharti and Idea have 65% and 74% of their existing customers in 3G circles,” the brokerage said.

Under scrutiny for entering into illegal roaming agreement for 3G mobile services, the Cellular Operators Association (COAI)—the lobby of GSM operators—said that any changes in it would deprive users of enjoying seamless high-speed data services.

COAI, in a letter to JS Sarma, chairman, Telecom Regulatory Authority of India (TRAI), said that prior to the 3G and broadband and wireless auction (BWA), the Department of Telecom (DoT) had made it clear that “the auction is for grant of spectrum and not for grant of licence to provide 3G or BWA services”.

Incidentally, the DoT had also raised doubts over 3G roaming pacts between companies, which do not have 3G services on pan-India basis. In an internal note, the DoT had clarified that a unified access service licence (UASL) cannot offer 3G services, declare a tariff plan or acquire customers in a circle where it has not been allocated 3G spectrum. Under the licence conditions, a licencee providing services has to have its own network, the DoT said.

However, COAI has contended that a Unified Access Service (UAS) License is technology neutral access service license which allows the provision of all type of access services.

Peeved over by the move to ban intra-circle 3G roaming, top executives of Bharti Airtel, Vodafone and Idea Cellular had also written a letter to the prime minister asking the government to refund the money with interest they paid for 3G spectrum. The letter, jointly signed by Sunil Mittal of Bharti Airtel, Kumar Manglam Birla of Idea and Vodafone Group CEO Vittorio Colao, says, “...in the event that 3G Intra-Circle Roaming (ICR) is now deemed impermissible, then, it would be a clear breach of our contract and the pre-auction confirmation given by the government. In that eventuality, we request that our spectrum auction payments be refunded to us with interest (as) compensation for all the capital investment made by us.”

All private telecom companies, excluding state-owned BSNL and MTNL, had participated in the 3G auction process, which went on for 34 days and ended on 19 May 2010. Due to intense competition, no single player could secure the airwaves throughout the nation. BSNL and MTNL were given spectrum nearly a year ago on the condition that they would be paying the amount equivalent to the final bid.

Nine telecom companies, including Bharti Airtel, Vodafone and Reliance Communications (RCom) and state-run MTNL and BSNL paid Rs67,719 crore to the Indian government as 3G spectrum fees.

Bharti Airtel managed to win 3G licenses in 13 out of the 22 circles, which was much lower than the market expectation and the company management’s aim of a pan-India footprint. RCom also successfully bid for 13 out of the 22 circles, but with a predominantly ‘B’ and ‘C’ circle footprint, in addition to the three metros—Delhi, Mumbai and Kolkata. Idea clearly followed the strategy of bidding for circles which account for maximum revenue for the company. In nine out of the 11 circles that Idea has won, it was one of the top three private operators in terms of revenue share. Vodafone managed to be successful in nine circles out of which six are real big guns such as Mumbai, Delhi, Maharashtra, Gujarat, Tamil Nadu and Kolkata.

In order to reduce operating costs, Bharti Airtel, Vodafone and Idea Cellular had already consolidated infrastructure and resources. Together they own Indus Tower, which has a portfolio of over one lakh towers. While Bharti Airtel and Vodafone hold 42% each in Indus Tower, Aditya Birla Telecom (the owner of Idea Cellular brand) owns a 16% stake in the tower company.

The government expect the telecom companies to buy spectrum at current market price. But even if they have to buy the spectrum at the 3G auction prices, it would be too costly for them. If Bharti Airtel has to buy spectrum in the remaining nine circles, where roaming is active, then it would have to shell out Rs4,460 crore, while Idea Cellular would have to pay Rs10,980 crore for 11 circles where it failed to win spectrum during the auction.

While there still appears to be some infighting going on between the government and telecom operators, there is some hope. The draft New Telecom Policy-11 (NTP) mentions a technology-neutral services delivery and spectrum sharing. “If these provisions (of the NTP-11) are implemented, any operator would be able to share spectrum to offer 3G or 4G services. However, the NTP-11 is still in the consultation phase and is not likely to become a reality before FY13,” said BRICS Securities.

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