India cuts airwave auction base price, still industry "disappointed"

A man speaks on the phone outside his shanty in front of the national flag in Dharavi, one of Asia's largest slums, in Mumbai January 24, 2012.

NEW DELHI (Reuters) - The government on Friday reduced by almost a quarter the minimum bid price in an auction for mobile airwaves, failing to appease carriers hoping for a deeper cut.

The country is selling 2G airwaves through open auction for the first time after the Supreme Court said a 2008 government grant process was flawed and ordered all 122 zonal permits to be revoked.

"We are quite disappointed," Rajan Mathews, director general of industry lobby Cellular Operators' Association of India told Reuters, adding a high auction price will hit carriers' margins.

"The reserve price will mean we will have to raise upwards of 3.2 trillion rupees in additional debt."

Most carriers in the once-booming sector are bleeding after a sharp drop in call prices due to cut-throat competition, while banks have been wary of lending to the sector hit by regulatory uncertainties after the 2008 licensing scandal came to light.

The auction base price was set at 140 billion rupees, or at about 7.4 times the 2008 price, for 5 mega hertz of second-generation airwaves in the 1800 MHz band, in which GSM-based mobile carriers operate, for all of India's 22 telecoms zones, telecoms minister Kapil Sibal said.

The cabinet, however, decided to continue with the existing annual airwave usage slab of between 3 and 8 percent of companies' revenue, higher than a flat 3 percent rate suggested by the sector regulator.

The base price is a 23 percent cut from the telecoms sector regulator's proposed price of 181.1 billion rupees. Carriers campaigned for an 80 percent cut.

The decision to lower the base price was aimed at sending a positive signal to investors, Sibal said.

"We want to ensure further investment in this country."

Sibal expected the final auction bids to be "much higher" than the base price.

The government has budgeted about $7 billion from the auction in the fiscal year to March 2013 to help narrow its fiscal deficit. At the same time a high price does not augur well for companies who are already pressured by heavy debt.

The Supreme Court's order affected eight carriers including the Indian units of Telenor (TEL.OL) and Sistema (SSAq.L), as well as Idea Cellular (IDEA.NS).

Telenor and Sistema have threatened to pull out of India if the auction becomes too costly. On Friday, Telenor said it still has not decided if it is going to stay in India.

For airwaves in the 800 MHz band, which is currently used by CDMA-technology based carriers such as the Indian unit of Russian conglomerate Sistema (SSAq.L), the cabinet set the starting price at 1.3 times that of the 1800 MHz band.

Bigger carriers such as Bharti Airtel (BRTI.NS) and Vodafone's (VOD.L) are not affected by the court order but are looking to buy more airwaves to feed their oversetretched networks in the world's second biggest mobile phone market.

The auction was due by end-August, as the affected carriers' current permits are valid until Sept 7, but is widely expected to be delayed.

(Additional reporting and Writing by Aradhana Aravindan; Editing by David Cowell)