India halves starting price of 2G spectrum for CDMA services

India has cut in half the minimum bid price for 2G spectrum to be used by operators of CDMA services, after there were no bidders in an auction for the spectrum last year.

The decision announced Thursday follows a cut in the reserve price for GSM spectrum by 30 percent, after the government found insufficient demand in the last auction.

The reserve prices for spectrum in the last auction were too high, and many operators were not willing to pay the large sums asked because the market for mobile services is getting saturated, analysts said.

The cut in the reserve price for CDMA was not deep enough, said mobile operator Sistema Shyam TeleServices. "The decision by the Cabinet to reduce the CDMA reserve price by 50 percent clearly reflects the growing realization that demand for 800MHz is very limited," the Indian joint venture of Sistema said in an emailed statement.

Starting March 11, the Indian government plans to auction the 2G spectrum in both the 1800MHz band for GSM and the 800MHz band for CDMA, R. Chandrashekhar, secretary of the department of telecommunications, told India's Supreme Court in a filing earlier this month.

The court had ordered last year that 122 licenses in 22 service areas should be canceled because of irregularities in their allotment, and the spectrum auctioned.

In November, five companies participated in the auction of 1800MHz spectrum, and 102 blocks of 1.25MHz each were auctioned for a total of 94 billion rupees (US$1.7 million). However, no bids were received for 4 out of the 22 service areas for 1800MHz spectrum, and there were no bidders in any of the 21 service areas where 800MHz spectrum was offered, according to the court filing.

The government hopes there will be a greater demand for the spectrum at the lower prices.

Among the companies that lost licenses as a result of the court order last year were the Indian joint ventures of Etisalat, Sistema and Telenor. Telenor decided to bid in the subsequent auction, while Sistema has filed a lawsuit to recover the licenses it lost. Etisalat did not participate in the auction.

The government approached the court to allow the operators to continue to run services despite the license cancellations, until the auctions are complete. It hopes the operators will bid for the spectrum in the March auction. Telenor secured spectrum in six service areas in India in the November auction. The Supreme Court has allowed the operators an extension until the next hearing on Feb 4.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com