A consultant involved in previous spectrum auctions in India has labelled India’s spectrum policy “a complete shambles”.

The comment comes as the Indian government is understood to be looking to cut reserve prices by up to 50 per cent in its second attempt in recent months to auction off CDMA radio spectrum, after all potential bidders pulled out of an auction in November last year, claiming that the reserve price had been set too high.

In the first instance, licenses offering 5MHz of 800MHz spectrum covering the entire territory of India would have cost RS14,000 crore ($2.5bn), which was around 1.3 times higher than the cost of 1800MHz GSM spectrum licenses.

The re-auction was forced after the Supreme Court of India cancelled all licences allocated in the initial 2G auction in 2008, due to allegations of corruption.

“The government views the telecoms sector as a cash cow,” Stefan Zehle, CEO at consultancy firm Coleago, believes. “This goes back to the 3G auction, where they arranged the auction in such a way that there would be a significant excess of demand over supply by not making all of the 2.1GHz 3G spectrum available. So in India, some of the world’s highest prices were paid and there still wasn’t enough spectrum.”

“It’s a shocking state of affairs and I find it amazing how such an important sector which could do so much for India, how in such a deliberate and wilful way the government is hell-bent on destroying it as much as they can, and in a way that is manifestly unfair to foreign investors.”

The Empowered Group of Ministers, a panel of Indian ministers, confirmed that the next auction will still take place in March 2013 as planned.

But Zehle added that the Indian Supreme Court’s decision to take back all of the 2G spectrum in February 2012 following the corruption scandal was also fundamentally unfair to operators because the fault clearly lay with the Indian government.

“It was because of their own process, but because they smelt that they could make money, following the big money they made in the 3G auction, they restarted this process.”

Now with some large multinational operators already throwing in the towel and withdrawing from the market, such as Etisalat, this illustrates just how bad the policy is, he argues.

He pointed out that the case of Russian operator Sistema Shyam Teleservices (MTS) is one that may have contributed to the potential cut in reserve price, as the Indian government was facing the prospect of confrontation with the Russian government, as a result of its flawed auction process.

“Sistema Shyam said it hasn’t done anything wrong so it will invoke the bilateral investment treaty between Russia and India, as the Russian government is an investor in Sistema. So there are two options: either India heads for confrontation with the Russian government over the Sistema license, or – and I suspect this is what is happening now – they could find a compromise and say alright, we’ll only charge you half of the reserve price, and this is perhaps how they’re trying to get out of this particular pickle.”

He added that the other flaws in the auction process are that spectrum allocations are not technology-neutral and are so narrow that operators cannot effectively refarm their spectrum.

“This is all to the detriment of the Indian population and businesses because operators will not be able to deploy the latest technologies effectively.”