2nd UPDATE:India Sets Minimum Bid Price For 3G,WiMAX Spectrum

India's government Thursday set 35 billion Indian rupees ($714 million) as the starting price for auctioning of one slot of pan-India's radio bandwidth for third-generation, or 3G, mobile phone services in the country.

It also decided to auction four such slots, clearing the path for the much-awaited auction in the world's second-largest mobile telephony market.

India will also auction three slots of radio bandwidth for broadband wireless access on worldwide interoperability for microwave access, or WiMAX, technology and set the base price for one such slot at INR17.5 billion, federal Telecom Minister Andimuthu Raja told reporters after a meeting of a ministerial panel on the issue.

India's major telecom operators have been awaiting the auction of 3G spectrum, which is owned by the federal government, as it will allow them to offer high-speed telecommunication services that can attract users willing to pay a premium for multimedia capabilities such as email on their mobile phones.

India expects to garner INR250 billion from the auction process, which is to be completed within three months, Raja said.

India's plans to sell 3G radio bandwidth was twice delayed last year after the federal finance ministry wanted the base price to be increased from the earlier-decided INR20.20 billion for pan-India license.

The government expects income from radio bandwidth sales to fund social sector initiatives and infrastructure development.

The government had restricted the sale of radio bandwidth to five slots, of which one has already been allotted to state-run Bharat Sanchar Nigam Ltd., or BSNL and Mahanagar Telephone Nigam Ltd., or MTNL, ahead of the proposed auctions.

While BSNL operates in the country's 20 of 22 telecom service areas, MTNL provides telephony services in the remaining two. The two companies will be paying the government the highest bid amount evolving from the auction process.

The government's decision to auction only four slots is likely to increase the bidding amount as there will be a minimum of five telecom companies interested in bidding for 3G radio bandwidth on a pan-India basis, said Nishna Biyani, telecom analyst at Mumbai-based brokerage Prabhudas Lilladher.

"If the companies are able to segregate 3G revenue from 2G, they could benefit significantly on the tax front," Biyani said.

Indian tax laws exempt telecom companies from paying tax on 3G revenue for the first five years of operations and to pay limited tax for seven years after that.

Indian telecom operators such as Bharti Airtel Ltd. (532454.BY), Reliance Communications Ltd. (532712.BY), Idea Cellular (532822.BY) and Vodafone Essar Ltd., the Indian unit of Vodafone Group PLC (VOD), and foreign telecom companies such as Telenor ASA (TEL.OS), Emirates Telecommunications Corp. (ETISALAT.AD), and Japan's NTT DoCoMo Inc. (9437.TO), which have entered the Indian telecom sector in the recent past, are among the companies that are keen on offering 3G wireless services.

"We believe 3G will drive the wireless broadband revolution in both urban and rural India, contributing to inclusive growth," Manoj Kohli, Bharti Airtel's chief executive and joint managing director, said in a statement.

Norway's Telenor, which owns 49% in Unitech Wireless Ltd., said it sees 3G as a great opportunity to introduce the next level of product and services in the Indian telecom market. It plans to launch mobile phone services by the end of 2009.

"We are therefore actively considering participation in the auctions. We await a comprehensive policy announcement to base our business case on," said Rajiv Bawa, executive vice president of corporate affairs at Unitech Wireless.

"Funding sources will also be part of our evaluation of this business case," he added.

Reliance Communications, Idea Cellular, Vodafone-Essar and other companies couldn't be reached for immediate comment.

Cellular Operators Association of India, or COAI - a body representing mobile phone operators under the GSM technology - was disappointed with the price. "It will be an unviable business case... be it 2G, or 3G, it's a price sensitive market. Operators can't afford to run [services] in a price like this," said T.V. Ramachandran, COAI's director-general, adding that many potential bidders will be put off by the price.

-By R Jai Krishna, Dow Jones Newswires; [phone]; [e-mail]