Idea Cellular, India's No. 4 mobile operator by subscribers, expressed caution about its outlook in the face of regulatory uncertainties and a lack of scope to increase voice call prices in a fiercely competitive market.

Idea reported a 17 percent fall in quarterly profit on Monday -- its third straight quarter of declining earnings -- on higher interest expenses, foreign exchange losses and a higher tax bill, though the results were better than expected.

With more than 880 million connections, India's mobile phone market is the world's second-biggest after China.

But the once-booming sector has suffered in recent years due to fierce competition as well as a probe into multi-billion dollar telecom licensing scandal that has prompted rule changes.

As India overhauls decade-old rules for the industry, there is little clarity yet on key issues including pricing of radio airwaves.

Companies including Idea, which is part of the Aditya Birla conglomerate, have also been hit by a government decision to ban 3G roaming pacts among carriers, which they are challenging in court.

"Policy headwinds continue to be the biggest challenge for these companies," said K.K. Mital, head of portfolio management at Globe Capital Market in New Delhi, who is "neutral" on telecoms stocks.

Bigger companies including Idea increased call prices in the middle of last year, the first such increase in at least two years after a vicious price war in the 15-player market left them bleeding. This raised hopes for improved profitability.

But revenue realisation from voice calls remains flat, said Idea Managing Director Himanshu Kapania, citing over-capacity in the crowded market, where smaller operators such as Telenor's India unit continue to offer cheaper call prices.

Kapania said he expected companies' high debt levels and need to make more investments on 2G and 3G networks will mean companies will likely hold the line on tariffs, but any further increase in voice call tariffs will be difficult.

"Is there going to be a next round of tariff hikes? I'm saying that is more or less ruled out," he told analysts on a conference call after the results announcement.

Idea is nearly a fifth owned by Malaysia's Axiata.

Its rivals, including Bharti Airtel, Reliance Communications and Vodafone's Indian unit, are also betting on a pick-up of premium 3G data services, which offer higher margins compared with voice calls.

Companies spent a total $21 billion to buy 3G and 4G radio spectrum in a state auction in 2010.

BEATS ESTIMATES

Idea said it would "aggressively" participate in 3G wireless data market.

The company started selling low-cost smartphones sourced from Chinese firms in the last quarter in a move to encourage data usage.

Shares in Idea, valued at about $5.8 billion, closed 3.6 percent higher in a slightly positive Mumbai market. The stock rose 18 percent last year, outperforming the broader market that lost nearly a quarter.

Idea said consolidated net profit fell to 2.01 billion rupees for its fiscal third-quarter ended December 31 from 2.43 billion rupees a year earlier.

Consolidated revenue rose 27 percent to 50.31 billion rupees, as Idea outpaced bigger rivals in monthly subscriber additions. The company had more than 106 million mobile customers as of December.

Analysts in a Reuters poll expected, on average, a net profit of 1.56 billion rupees on revenue of 49.32 billion rupees.

"The outlook for the business remains a combination of headwinds and tailwinds," Kapania said on the analyst call.

Average realisation per minute, a key metric for telecoms companies, increased to 43.3 paise (0.9 U.S. cents) from 41.8 paise a year earlier and 42.7 paise in the September quarter.

Average revenue per user was 159 rupees a month in the December quarter, slightly below the 168 rupees of a year earlier, but better than September quarter's 155 rupees.