India telecom official says 3G roaming services illegal

India's telecommunications department has decided that the agreements signed by some telecom operators for third-generation mobile-roaming services are illegal, dealing a blow to their attempts to boost revenue by offering such higher-paying services to more customers.

"The decision is being conveyed to the operators. It [3G roaming services] has to be stopped immediately," Telecom Secretary R. Chandrashekhar told Dow Jones Newswires Thursday.

He added that no decision has yet been taken to issue show-cause notices or impose any penalty on operators who had signed 3G roaming pacts.

Bharti Airtel Ltd., Idea Cellular Ltd. and the local unit of U.K.'s Vodafone Group PLC in July signed agreements among themselves to provide 3G roaming services in areas where they don't have bandwidth. Bharti has 3G bandwidth in 13 of India's 22 telecom service areas, while Idea has access in 11 areas and Vodafone India in nine.

Shares of Bharti and Idea fell on the news. At 0815 GMT, both Bharti and Idea were down 3.8% each at INR328.60 and INR79.55, respectively. The Bombay Stock Exchange's benchmark Sensex, in comparison, was down 0.6%.

Bharti and Idea had paid INR122.95 billion ($2.33 billion, based on current exchange rate) and INR57.69 billion, respectively, and Vodafone India INR116.18 billion for the 3G bandwidth at a government auction last year.

They expected revenue from such services to offset the effects of intense competition and low tariffs in other segments, and also help recover their investment.

The telecom department's latest decision will be a "significant" negative for companies that were hoping to recover investment made on 3G infrastructure, said Ankur Rudra, an analyst at Ambit Capital.

"The share of revenue for Bharti and Idea from 3G will shrink as the addressable market for 3G services will be smaller [if the operators are asked to reverse these pacts]," he said, adding that the companies may move courts against any such government decision.

Bharti, Idea, and Vodafone India declined to make any immediate comment.They had earlier supported the 3G arrangements, even seeking the prime minister's intervention.

They had said that, if they weren't allowed to provide roaming services, the government should refund the amount they paid for 3G.