3G Intra Circle Roaming (ICR) issue

Last week couple of news on 3G Intra Circle Roaming(ICR) arrangements in India raised the interests of the stakeholders. A brief background will help in understanding the issue better. Department of Telecom (DoT) who is the licencor and issues all telecom licences in India had earlier asked 3 Telecom service providers viz. Airtel, Idea and Vodafone to stop ICR based 3G services in the service areas where 3G spectrum was not assigned to them. In reaction to this, these 3 operators filed petitions in TDSAT (the tribunal which hears cases related to telecom in India). Incidentally the two members of TDSAT gave a split judgement. Subsequently DoT asked these operators to stop the 3G services based on ICR arrangements and even slapped penalties. The operators went to High Court and got a stay. Last week the stay has been vacated. To understand the issue of 3G ICR, the best is to go through the split judgement of TDSAT. To help the readers of this blog, I have summarized the same below. However I advise the readers to go through the original judgement so as to obviate any errors that may arise because of my understanding of the judgement. In case you are short of time, here you go ----

    Split Judgment by TDSAT on ICR dated 03.07.2012 - Finding the plea acceptable and valid, TDSAT Chairman Justice  S B Sinha allowed the operators’ plea against the government's directive to stop intra circle 3G roaming saying that it was violative of natural justice. The Petitions were allowed, the impugned orders dated 23.12.2011 was set aside with liberty to the Respondent to pass appropriate orders upon giving due opportunity of hearing to the Petitioner. However, differing in the decision taken, TDSAT Member P K Rastogi dismissed plea saying that the petitioners who have not got 3G spectrum allotted by the licensor in certain circles, cannot provide 3G services to its customers in those circles by way of making intra circle arrangement with the service providers having 3G spectrum. 

 Salient points deliberated in judgement delivered by TDSAT Member P K Rastogi

a.   On the principal question as to whether the petitioners having UASL/CMTS license along with 2G spectrum in certain circles can provide 3G services to its customers in these circles although 3G spectrum has not been allotted to them and whether such services can be provided by making intra circle roaming arrangements with operators having 3G spectrum in these circles, Member TDSAT has taken a view that the reading of cl. 2.2 (a)(i) of UASL shows that services to be provided by the licensee cover collection, carriage, transmission and delivery of voice and/or non-voice messages over licensee’s network in the designated service area and includes provision of all types of access services. In addition to this, except those services listed in para 2.2 (b)(i), licensee cannot provide any service which require a separate licence. Further he deliberated on the issue –“whether provision of 3G services requires a separate license”. On the issue, he is of the opinion that it is clear from the terms and conditions of license that the provision of 3G services cannot be provided without amendment to the UAS licence under Indian Telegraph Act, 1885 and without getting a license from WPC wing of DOT under Indian Wireless Act, 1933 for the relevant spectrum required to provide 3G services.  Thus, in his view, the provisions of 3G services require a separate license.  If the UASL licensee does not have separate license to provide 3G servies, it violate clauses 2.2(a) (i) and 2.2(b) (i) of the terms and conditions of the license.  

b.   3G services have been defined in the notice inviting applications (NIA) issued in connection with auction of 3G and BWA spectrum as “In case of successful bidders, services offered under the scope of respective service licenses using 3G/BWA spectrum assigned through the auction process.” Therefore, 3G services are those services which use 3G spectrum and 3G spectrum can be got through the process of auction only. In this petition, the petitioners have not got the 3G spectrum allocated to them in the impugned circles.

c.    On the question as to whether it is possible to provide 3G service by the petitioners to its subscribers by way of intra circle roaming arrangement with other operators having 3G spectrum, Member TDSAT has taken a view that the definition of ‘service’ and that of ‘subscriber’ show that the petitioner should have the license and the required network to provide particular type of service to its subscribers.  The petitioners have established only 2G network and have not setup 3G network which requires separate equipment and separate allocation of frequency. In case of intra-circle roaming, the roaming seeker should also have its home network and the licence for the spectrum for which it is providing service to its subscribers. Its subscribers can roam on the facility of roaming provider temporarily only and not permanently. Such arrangement is not permissible under the terms and conditions of license. In fact, UASL licensee without having the relevant (3G) spectrum providing 3G services to its subscribers will be acting as Mobile Virtual Network Operator (MVNO) where the service provider does not have its network in that frequency still provides services to the subscriber.  At present, MVNO is not part of government telecom policy and is specifically prohibited. The arrangement made between the parties are such that it specifically bars 2G roaming, and allows only 3G roaming for the subscribers of the roaming seekers i.e. petitioners herein. The roaming seeker neither has network nor the spectrum for 3G services. As the roaming seeker is providing 3G services by using the spectrum and network of the roaming provider, the Petitioner work like MVNO which is not permissible at present.

d.   In its judgment, Member TDSAT also quoted the terms and conditions of the roaming agreement entered by M/s TATA and Aircel and opined that the agreement indicates that the roaming provider having 3G spectrum have limited the usage of its 3G spectrum to the roaming seeker to certain percentage. This shows that the 3G spectrum is being earmarked to certain percentage for roaming seeker. Such arrangement of earmarking the part of the 3G spectrum allotted by a successful bidder to a service provider without any authorization by the licensor is not permissible.

e.    3G and 2G spectrum are allotted with different carrier sizes. While 3G spectrum (in 2100 MHz Frequency band) has been allotted with carrier size of 5 MHz; TDMA (2G)spectrum is allotted with carrier size of 200 KHz each for in 900 MHz/1800 MHz frequency band and 1.25 MHz each for CDMA in 800 MHz frequency band.

f.     On the issue of promissory estoppel that was raised by petitioners on the grounds that the DoT in its response to specific query in pre bid conference has said that roaming facility between 2G and 3G service will be available and once that commitment has been made the responses given by the DOT are definitely binding on the licensor, Member TDSAT was of the view that the doctrine of promissory estoppel cannot be invoked by a third party.  The petitioners in these petitions are not successful bidders in the auction. No contract was signed between the petitioners and the respondent.  Any response given during the process of auction cannot be binding on the licensor vis-à-vis these petitioners. As no promise has been made to these petitioners, the doctrine of promissory estoppel is not applicable. Therefore, the petitioners will not get any benefit out of the response given by DOT during the auction proceedings. The petitioners will be governed by their own license agreement. The query and responses are not in the nature of circular instructions of the department. The responses are for the purpose of auction of the 3G spectrum only. These responses cannot create any new right to the parties having effect of changing the terms and conditions of their licenses.

g.    On the issue of Natural Justice raised by Petitioner that the impugned communication of DoT dated 23.12.2011 to stop 3G services violated the principle as neither show cause notice was issued before the said communication by the Respondent nor any opportunity of hearing was given to the Petitioners, Member TDSAT has taken a view that various TERM cells of DoT had issued letters to the petitioners. Thus, they were well aware of the objections raised by the respondent at different points of time. The unsuccessful bidders did not get either the amendment to their licence or the allocation of 3G spectrum from the respondent.  It is not understood as to how the petitioner got any right to start 3G services.  The licensor did not confer any right to such effect. The show cause notice would have been necessary, if the petitioner were conferred any right to provide the 3G services to its customer under the licenses granted to it and the impugned letter of the respondent dated 23.12.2012 would have curtailed such rights.

Etisalat yet to get an IDEA about Indian Telecom Market

There are lot of speculations in market about UAE telecom major Etisalat's India plans. Some says, like Telenor, it is planning to quit the Indian market while others say that it  plans to invest in India's Idea Cellular. Still others are talking about Etisalat striking a deal with India's Reliance Communications this year. While asserting that it is keeping its options open regarding investment in the fast-growing Indian telecom market, Etisalat is not responding to other speculations. It seems Etisalat is yet to get an IDEA on how to succeed in Indian Telecom Market

Etisalat already has a presence in the Indian market as Etilsalat DB Telecom India Pvt Ltd, which was earlier known as Swan Telecom. On June 3, Etisalat Chairman Mohammed Omran revealed that the telecom firm was evaluating several Indian telecom firms for a possible stake acquisition, but had not reached a final decision.  Etisalat is also waiting for the issuance of tender requirements by the Syrian government that will enable it to bid for Syria's third mobile license.

Rollout penalty for Indian Telcos - Delayed but not denied

The government of India has proposed a penalty of Rs 135.60 crore on private telecom operators, including Tatas, Airtel and Reliance Communication, for delays in rolling out networks. Though, the department of telecom (DoT) has lowered the total quantum of penalty from Rs 477 crore decided earlier to Rs 135.60 crore after repeated representations by the operators, giving a major benefit to all big private telecom players. Almost all private players except Vodafone-Essar face penalties.

As reported in Economic times, the penalty comes to over Rs 41 crore on Tatas, Rs 31 crore on Airtel and Rs 19.65 crore on RCOM. Among others, Aircel faces a penalty of Rs 28.85 crore, HFCL has a liquidated damages of Rs 7 crore and the two PSUs — BSNL and MTNL, along with Vodafone-Essar face no penalty.

The cases for imposition of liquidated damages were processed since 2005 and show-cause notices for imposition of liquidated damages (amounting to Rs 477.15 crore) were issued in 96 cases to 10 operators. There were representations from industry pointing out delays in statutory clearances, grant of spectrum for access, among other factors, for delayed rollouts. Thus, it was decided to revisit the subject and DoT has arrived at revised lower penalty for these operators.

As suggested in one of my earlier posts its also time to adopt Swedish model for penalizing operators for not meeting roll out obligations and are in turn hoarding spectrum. (For reading the full post click here)

SPECulation on spectrum TRUMped

As per Economic times, the indian government has today given in-principle approval for allocation of spectrum to GSM operators who have been waiting for frequency since 2006, CDMA players entering the GSM segment and to new aspirants in that order.
With this, Indian government has met GSM operators' demand that they should be given priority ahead of others in spectrum allocation. Among the beneficiaries, existing operators include Aircel, Vodafone-Essar and Idea cellular, while Reliance Communications, HFCL and Shyam Telecom would benefit under the dual technology clause. The process would begin by issuing Letters of Intent (LoIs) to all the eligible players. As regards new aspirants, according to an official statement, the government would issue LoIs to all the eligible applicants, who have applied before September 25, 2007, on a first-come-first serve basis.

The news was expected as this was an option that will ensure regular incremental income to Government of India (GOI). The government's revenue from spectrum fee levied from mobile operators is poised to more than double to Rs 7,000 crore in 2008-09, without really impacting the tariffs. The Department of Telecom (DoT) is reported to be working on enhancing spectrum charges, collected based on annual revenue, to the government and its implications on the tariff of telecom services. The idea for charging spectrum fee in this way is to ensure that the government gets incremental revenue over the years based on growth of the sector and keeps telecom services cheap as upfront auction charge would lead to higher initial investment which would be reflected in higher tariffs. In 2006-07, the government received about Rs 1,956 crore from mobile operators as spectrum charges and at current rate it is likely to increase to Rs 3,000 crore in 2007-08. However, if spectrum charges as percentage of gross revenue are enhanced by about 75 per cent, the government will get Rs 7,000 crore in 2008-09 and will grow every year without any impact on tariffs.

Currently the mobile operators pay 2 per cent of Adjusted Gross Revenue (AGR) as spectrum charges for 4.4 MHz and 3 per cent for 6.2 MHz and this goes up to five per cent for 12 MHz of spectrum. DoT is of the view that these charges can be revised and that too without any impact on the tariffs. On the other hand idea of auctioning of spectrum may lead to legal implication as it would be a major departure from the existing policy. Telecom regulator TRAI, in its recent recommendations, has also not suggested auction of 2G spectrum.

Personally I feel that auctioning of spectrum would have resulted in impractical bid prices (as happened when DoT called for licence fee bids when mobile services started in India). Those who are new entrants will pay more because by grapping the spectrum at exorbitant rates they could have blocked the expansion plans of existing players (a move that might have given serious blow to telecom expansion in India). The existing players would forcefully have bid exorbitantly knowing their future depends only on the spectrum. As a result, the overall telecom growth in India would have been jeopardised.

Oiling the rural connectivity - Idea Cellular uses biodiesel to fuel its BTS's power !

Indian mobile operator Idea Cellular, in an attempt to bring cellular phone service to remote areas where the electric supply is at best spotty, has begun installing mobile base stations powered by fish oil and used frying oil from local restaurants. It's believed to be the first time in the world that biofuel has powered a cell phone installation.
The oil is processed locally into biodiesel fuel and used to fuel the generators that power the base stations. So far four base stations have been installed in the Indian state of Maharashtra by Ericsson for Idea, using a grant from the GSM Association's Development Fund. The four sites were described by Ericsson as "greenfield sites that have not previously had access to a mobile network and are located in areas with unreliable power supply."

Exploring alternative power solutions, such as biofuels, is key to the development of cost-effective ways to extend mobile networks to the 20 percent of the world's population that don't have coverage today. The three companies pointed out that an important factor is that the biofuel is produced locally, creating employment in rural areas while reducing the need for transportation. Biodiesel has a much lower impact on the environment than conventional diesel, they also pointed out. The cleaner burning renewable fuel also requires fewer site visits and also extends the life of the base station generator, reducing operator costs, according to the companies.


The use of fish and cooking oil, while novel and undoubtedly an interesting recycling technique, is only temporary. Eventually the biodiesel for the cellular base stations is going to come from oil made from the seeds of the Jatropha Curcas, a tree being widely promoted worldwide as a biofuel source. That tree is said to yield four times as much biofuel as soybeans for a given size piece of land, and about half as much as highly cultivated corn. Unlike corn, though, Jathropha will grow in wastelands. India has been pushing use of Jathropha in a huge range of applications, from the biodiesel fueling the cellular base stations to use of a Jathropha extract as an anti-constipation medicine. According to an article in Wikipedia, the rail line between Mumbai and Delhi is planted with Jatropha and the train itself runs on 15-20 percent biodiesel.

Idea weds Spice - How ? Remains to be answered

Idea Cellular and Spice Telecom along with Telekom Malaysia (TM) that holds 49% stake in Spice, are yet to work out an amicable arrangement between the deal between the two - Merger or acquisition. While Idea, in which the Birlas own 57% stake, wants to fully acquire Spice, the Modis-promoted company is keen for a merger.

Spice has 2.8 million subscribers, largely high-end, in Punjab and Karnataka circles where Idea is not yet present. Idea, which listed on the bourses in March this year, has grown through the organic as well as the inorganic route in the past. While an acquisition of Spice will give Idea a ready entry into two new circles and a good user base, the Birlas are not willing to pay over the top. Spice is said to be quoting a price of more than a billion dollars for the two-circle operation, to which the Birlas are not agreeing. “We are a fast-growing company and our valuation is definitely higher than a billion dollar,” a Spice executive said. However, going by the fact that promoters of Spice will offload 20% stake in the forthcoming IPO for $150 million, the company’s valuation is $750 million. This remains a bone of contention between the two sides. Idea will continue to be an AV Birla group company going forward and there was no question of the company diluting its identity in a merger. Also, a buy-out of Idea by Spice seems unlikely because Idea is seven times bigger than Spice. AV Birla group officials have earlier said the group will not dilute its stake in Idea below 51%.

Meanwhile, TM has clearly said that it will not exit the Indian market, TM bought 49% stake in Spice in March last year for $179 million. Spice applied for spectrum in 20 circles in September last year. It has already received the DoT nod for NLD and ILD operations. It is too early for the deal to come through as Spice was working on its IPO ahead of any agreement. Sebi has given its approval to the public offering. “We should be opening in the end of June. However, an acquisition after the listing of Spice will become more complicated due to regulatory issues. For the year 2006, Spice recorded revenue of Rs 533.78 crore and EBITDA of Rs 107.86 crore. Its EBITDA margin fell from 23.8% to 20.2% at the end of 2006. The company’s capital expenditure at the end of last year totalled Rs 269 crore.

Idea Cellular to rationalize its corporate structure by merging eight subsidiaries

In a move to rationalise the corporate structure and improve the consolidated balance sheet of Idea Cellular, Idea Cellular will merge its eight subsidiaries with the company during the current quarter. The A V Birla Group company has filed applications for amalgamation of subsidiaries with respective High Courts within whose jurisdiction the registered office of these entities are located. Since Idea has grown through the inorganic route as well, it acquired companies in some circles while expanding operations. In 2001, Idea acquired RPG Cellular, which was offering services in Madhya Pradesh. Subsequently in 2004, it bought Escotel, which was the incumbent operator in Haryana, Uttar Pradesh (West) and Kerala. It was later renamed Idea Mobile Communications. The licenses for Uttar Pradesh (East), Rajasthan and Himachal Pradesh were issued to Idea Telecommunications, which began operations in these circles last year.

Idea’s other subsidiaries are BTA Cellcom, Sapte Investments, Vsapte Investments, Bhagalaxmi Investments and Asian Telephone Services. The last four are investment companies and special purpose vehicles, each holding 25% stake in BTA Cellcom. The revenues from all of these are consolidated with Idea’s revenues, which was over Rs 4,400 crore for the fiscal 07. The consolidated net profit was Rs 503.2 crore. On a standalone basis, Idea’s revenues for full year were Rs 2826 crore while the net profit was Rs 277.7 crore.

Earlier this year, the AV Birla group flagship Aditya Birla Nuvo (ABN) sold its wholly-owned subsidiary Aditya Birla Telecom (ABT) to Idea Cellular for Rs 10 crore. The A V Birla group had floated ABT in 2005 as a back-up mechanism when it did not fully own Idea Cellular. Through ABT, the group filed applications with the Department of Telecom (DoT) for licenses in Mumbai and Bihar circles. Since Idea was earlier jointly owned by the Tatas and Birlas, the group needed a separate vehicle to apply for telecom licenses in newer circles. Now, the company is in the process of rolling out network in Bihar. Idea is expected to commence operations in Mumbai and Bihar by the end of this year. It is also likely to start NLD services during the current fiscal.

Mobile companies in India showed impressive 4th quarter results

The results for the fourth quarter of the 2006-07 fiscal - The three big telecom companies in India Bharti Airtel, Reliance Communications (RCOM) and Idea Cellularthat have reported impressive growth. The market was expecting a double digit growth, though there was concern over a falling average revenue per user (ARPU), following the expansion of companies into smaller cities with lower usage. Also, the mandatory requirement to verify and authenticate the identity of subscribers was expected to impact the reported subscriber base.

However, Idea reported a 48% rise in topline for the full year and a more than two-fold jump in bottomline. The operating margins for the eight established circles remained stable, compared with the previous year.

The Delhi-based Bharti Airtel has also posted growth in sales and profits on Friday. Its topline grew 59%, while bottomline surged 89%. Further, the company reported improved operating efficiencies, compared with the previous year, as operating margins expanded by over 300 basis points (bps).

The Anil Ambani group company RCOM’s operating margin shot up from 24% in the prior year to 40%. The pace of growth reported by the companies can be attributed to the scorching pace at which they are expanding the subscriber base. This has been combined with their ability to keep costs under control. Mobile companies in India are adding about seven million users every month — the fastest anywhere in the world — on the back of lower tariffs. Moreover, the minutes of usage (MOU) per subscriber are also on a rise given the gradual transition of users from fixed telephones to mobile. This has particularly taken care of the falling ARPU. For instance, in the case of Bharti, the ARPU fell 8% from the previous year, while the MOU increased 10%. The telecommunication companies are also keen on expanding into other forms of services, including direct to home (DTH), long distance telephony and broadband offerings. All the three companies have announced capex plans to fund their expansions. The valuations of Bharti, in terms of enterprise value per subscriber, is gradually softening. For instance, post FY07 results, Bharti’s valuation stands at Rs 35,538 per user, compared with Rs 41,500 per subscriber in March. In the case of Idea, it has increased from Rs 20,800 per subscriber to Rs 24,200 per subscriber.

Idea IPO oversubscires 42 times!

Investors worldwide literally have stampeded to buy into the initial public offering (IPO) of India's Idea Cellular. The initial reports indicated that the issue is 42 times oversubscribed. That means that the shares will go to market at the high end of the offering bracket, or rs 75 per share. The company planed to mop up funds aggregating Rs 2,125 crore, excluding a green shoe option of Rs 318.75 crore from this IPO.

The oversubscribtion has given rise to possibilities that the shares immediately will surge by 20 percent or more when they start trading. That's in part based on so-called "grey market" trading in the shares even before the IPO closed, a common practice in Indian share market.

Idea, which has about 12 million subscribers, submitted a "draft red herring prospectus" (DRHP) with the Securities and Exchange Board of India (SEBI) two months ago What everyone is watching now is how the Aditya Birla group, which retains a controlling 65.2-percent equity share in Idea, performs in its plans to build up the carrier. Aditya has said it will use the IPO proceeds to fund expansion plans, including construction of a long-distance network.
Idea first rolled out its network in 1995 in the Indian states of Maharashtra and Gujarat. Since then, it has grown both by bidding for licenses and through buying smaller competitors Escorts and Escotel. Its footprint currently covers nearly 60 percent of India's potential subscriber base, geographically encompassing a vast area with 1,353 towns and cities. That's scheduled to grow to 70 percent within six-to-nine months as the company enters the Bihar and Mumbai markets.

The Indian wireless market - Share of different operators (as on 31st Dec 2006)

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