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No immediate impact due to cancellation of 3G roaming pacts

To have little impact on earning in immediate term, but will add to the confusion within the industry

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The notice from the Department of Telecom to stop third generation (3G) mobile data services through roaming pacts outside their license zone is yet another jolt for the telcos. Analysts believe this will have little impact on the earnings of these firms in the immediate term, but it pulls the telecom industry back into confused situation. This time around raising question on the future earnings from 3G services.

DoT had announced that Bharti Airtel, and Idea Cellular, the three telcos that had entered into an inter-circle roaming pact last year to offer 3G services in circles where they did not have spectrum, as illegal.

Bharti Airtel, the country’s largest telecom operator, on Monday moved the high court here, challenging a show-cause notice by the department of telecommunications (DoT) and an advisory from it that asked the company to stop third-generation (3G) roaming services with immediate effect. If the DoT manages to hold on to its ground of terming these pacts as illegal, telcos will have to pay anything upto Rs 50 crore per circle as penalty.

"This might not have any impact in near term but it means their investments for 3G will not pay off. If the DoT cancels the roaming pact they will lose out on whatever revenue they were making on 3G and any future prospect of revenue. Besides telcos are yet to recover the investments they made for 3G,," said Ankita Somani, research analyst, Angel Broking.
 
According to the Cellular Operators Association of India India has about 30 million customers using 3G services with about 20 per cent of them using 3G roaming services. While the fate of continuation of 3G services to these 30 million users is in a limbo, telecom expert feel that this will not impact the numbers of the telecom firm, however it does increase confusion.

Vodafone and have put in a total of $5.1 billion to acquire 3G licences from the government. Idea paid around Rs 5,768 crore for acquiring 3G spectrum in 11 circles, over and above this the company also invested around Rs 4,200 crore on network infrastructure. Compared to the investments that telcos have made, they are yet to see any surge in the adoption of 3G services among the 900 million mobile subscribes in India.  

“I think most of the players have gone slow or stopped marketing in new circles. They kind of slowed this even prior to the Telecom Disputes Settlement & Appellate Tribunal (TDSAT’s) judgement. This will certainly impact the existing subscriber base on 3G. They might have to move them to lower frequency. This might also perhaps impact the 4G marketing pacts that some might have wanted to enter,” said Kunal Bajaj, an independent telecom consultant.

The inter-circle roaming pact had been necessitated because no single telco could get spectrum in all of the country’s 22 circles in the 3G auction in 2010. To ensure they could offer services across the country, the three top telcos had entered into an inter-circle pact.

“There has not been a phenomenal growth of 3G. Especially when you look at the projections made before the services were to be launched and the reality today, the gap is huge. So in immediate term I do not think this will have any impact on the telcos numbers. But as subscribers increase and location based services see an uptake these such pacts will be important,” said Alok Shende, principal analyst at Ascentius Consulting.

The operators had filed a petition challenging DoT’s verdict in TDSAT. The two-member bench of TDSAT in July gave a spilt verdict on the matter. Following the spilt verdict, the operators were maintaining “status-quo” and continuing with their 3G roaming pacts.

However, experts pointed out that the 3G inter-circle roaming pacts were also to be leveraged for the subsequent roll-out of 4G services. With Reliance Infotel as the only pan-Indian 4G player, many GSM players who have spectrum only in a few circles (like Bharti, Aircel, Idea) could form a similar pact for pan-Indian services and take on Reliance if it is allowed. But, the scenario could change if it is eventually disallowed.

“Again we think 4G impact and usage is very early days to comment on. 4G is going to be difficult play. Besides network are yet to be rolled-out, devices price points have to be brought down. Even if Reliance would be the first player to roll-out they have to get the right tariff plan,” said Bajaj.

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