UPDATE: India Sets Bid Price For 3G, WiMAX Licenses

India Thursday decided on the starting price for auctioning radio bandwidth for third generation, or 3G, mobile phone services in the country and the number of licenses to be auctioned, clearing the path for the much-awaited auction in the world's second-largest mobile telephony market.

India's major telecom operators have been keenly 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 e-mail on their cellphones.

India will auction four 3G mobile phone service licenses and three worldwide interoperability for microwave access, or WiMax, technology licenses, federal Telecom Minister Andimuthu Raja told reporters after a meeting of a ministerial panel on the issue.

India expects to garner INR250 billion from the auction, Raja said.

He added that the auction process will be completed within three months.

One pan-India 3G license will have a floor price of INR35 billion and a Wimax license will have a floor price of INR17.5 billion, 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 hiked from the earlier-decided INR20.20 billion for a 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.

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.

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), are among the companies that are keen on offering 3G wireless services.

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

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

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