NEW DELHI (Reuters) - Idea Cellular, India's fourth-largest mobile carrier by subscribers, on Friday reported a lower-than-expected 12 percent fall in quarterly profit, sending its shares up more than 3 percent.
Higher interest costs and tax provisioning dragged profit, Idea, part of the cement-to-retail conglomerate Aditya Birla Group, said.
Idea, which last year spent $1.3 billion to buy third-generation (3G) radio spectrum, said it was "aggressively expanding" its 3G network and reiterated that it would have 3G coverage in 3,000 towns by next March.
Outlook for carriers in the world's fastest-growing, yet highly-competitive mobile market has improved after recent call price increases, which analysts expect will add to their profitability in coming quarters.
With more than 850 million mobile connections, India's is the world's second biggest market for phone services after China, but operators have traditionally sacrificed profits to chase growth, resulting in wafer-thin margins for the sector.
Indian mobile market leader Bharti Airtel, third-ranked Vodafone Essar and Idea have recently raised call prices in select regions, the first such increase in at least two years, after a vicious price war had strained their financials.
Companies have rolled out 3G services in recent months and are betting on a pick up in premium services that offer higher margin compared with their mainstay voice calls.
Idea, which is owned nearly a fifth by Malaysia's Axiata, said consolidated net profit fell to 1.77 billion rupees ($40 million) for its fiscal first quarter ended June, from 2.01 billion rupees a year earlier.
Revenue rose 24 percent to 45.21 billion rupees.
A Reuters poll of brokerages had on average expected net profit of 1.58 billion rupees on revenue of 44.52 billion rupees for the Mumbai-based firm, which had about 95 million mobile subscribers at end-June.
Idea said profit for the June quarter was hurt by amortisation of 3G spectrum fee and related interest costs after its 3G services launch during the three-month period.
Finance costs more than doubled to 2.46 billion rupees, Idea said, adding, it also set aside 778 million rupees for taxes, up from 72.5 million rupees in the year-ago quarter.
Shares in Idea, valued at nearly $7 billion, rose more than 3 percent after the announcement in a weak Mumbai market.
Idea shares are up about a third this year in a falling market and have outperformed those of bigger rivals Bharti and Reliance Communications.
Bharti shares are up more than a fifth this year, but Reliance Comm is down over 30 percent.
Idea is not linked to the multi-billion dollar telecoms licensing scam that has rocked the government and businesses. But companies such as Bharti, Vodafone and Idea face risk of steep increases in 2G spectrum prices as India overhauls its telecoms rules.
Separately, Idea is involved in a legal tussle with the country's telecoms ministry, which earlier this year obtained a court order to stay Idea's takeover of a smaller telecoms firm Spice, a deal that has already been closed and operations merged.
(Reporting by Devidutta Tripathy; editing by Malini Menon)