New Delhi: India’s telcos and policymakers are headed for a clash over the legality of so-called roaming arrangement the former have signed for their 3G, or data-rich third-generation (3G), telecom services.

No telco has spectrum (or radio waves) in all 22 circles or service operation areas into which the Indian market is divided, and companies such as Bharti Airtel Ltd, Vodafone Essar Ltd and Idea Cellular Ltd have addressed this by signing, in July, intra-circle 3G roaming agreements. This allows them to offer their own services and sell their own 3G connections in circles where they do not have their own network.

Graphic by Yogesh Kumar/Mint

In June 2008, after several companies were allowed to enter the telephony business and were given second-generation spectrum, the department of telecommunications (DoT) introduced a concept called intra-circle roaming, where a company with a licence to operate in a certain region could piggyback on the network of a telco already operating in the same region, till such time they were able to start services on their own. The 3G roaming agreements have been signed on the basis of this change. Bharti has 3G spectrum in 13, Vodafone in 9, and Idea in 11 circles, and should the agreements they have signed be declared illegal, they will see some a fall in revenue.

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“Non-3G markets (circles where the said telco doesn’t have 3G spectrum) account for approximately 31% of revenues for Bharti and 22% for Vodafone and Idea Cellular. Scrapping of roaming deals may have a direct revenue impact of 6%, 2% and 6%, respectively, for Bharti, Idea and Vodafone. As Idea is a new entrant in these markets, it is least impacted, in our view. However, for Bharti and Vodafone, there will be some compensation from markets in which they have 3G spectrum via higher 3G marketshare," Rajiv Sharma, an analyst with HSBC Securities and Capital Markets (India) Pvt. Ltd said in a 25 October report. “As much as 10% of subscribers in every circle are high end or earn high revenue for the telco, and it would hurt the bottom line of the operator if they lose these subscribers," the report added.

In May, before the telcos signed the agreements, Telecom Regulatory Authority of India (Trai) said roaming agreements on 3G should not be seen as spectrum sharing, but as MVNO (mobile virtual network operator) ones and be termed illegal. An internal committee of DoT has also come to the conclusion that while at first glance these agreements are akin to spectrum sharing, they are more like MVNOs; both are at present illegal.

The telecom regulator plans to ask DoT to fine each of the operators that has signed such an agreement 50 crore, according to internal DoT documents reviewed by Mint. DoT, too, seems to have made up its mind. Earlier this month, its telecom enforcement and resource monitoring division ruled that the agreements were illegal and the telcos should be penalized for the infraction, according to a DoT document reviewed by Mint. The department is now seeking legal advice.

The argument of the telcos is that the issue had been clarified ahead of the bidding for 3G spectrum.

Spokespersons for Bharti, Idea, and Vodafone declined comment.

“The main strategy at the time of going in for the auction by the operators was to ensure that they keep the circles where they have the maximum revenue-generating subscribers. These roaming agreements allowed them to ensure that the high-end subscribers in circles where they don’t have 3G spectrum don’t port to another operator who has 3G spectrum in that circle," said a Mumbai-based analyst with a multinational brokerage, who asked not to be identified because his firm does not allow him to speak to the media.

Interestingly, the government is looking at allowing spectrum sharing as a part of the Spectrum Act expected later this year. Over the past few years, DoT has also been discussing various forms of MVNOs to be allowed in the country.

On 30 November, the attorney general will have to respond on behalf of the government to a public interest litigation on the issue filed by Delhi-based lawyer Yakesh Anand, who claims in his petition that the 3G roaming agreements are illegal and should be scrapped.