The official award of 3G wireless spectrum in India may now be delayed until the end of 2009, and possibly even later, industry watchers warned on Tuesday.

India’s communications minister A. Raja said this week that India will “definitely complete” its auction of 3G wireless spectrum by the end of 2009. But analysts warned that, given that this is the second delay, it can’t be sure that the new deadline will be met.

The auction of 3G spectrum, originally due to take place at the end of 2008, had been delayed due to ongoing disputes between the government and the regulator. The latest delay is related to a potential increase in the minimum licence fee and to give time to enact tax breaks for local Indian equipment vendors, local press reports say.

Earlier this year state-owned operators BSNL and MTNL got a head start in the 3G market, having been allocated spectrum in each of India’s 23 operating regions or ‘circles’ between them. Both BSNL and MTNL have a 5MHz slot in the 1920-1980MHz frequency band paired with another 5MHz channel in the 2110-2170MHz frequency band.

If BSNL and MTNL do have a substantial head start over 3G rivals, particularly if the spectrum auctions are unlikely to take place until the end of 2009, the licences would surely look less attractive to investors weighing up India’s 3G opportunity. And this too could work to the advantage of BSNL and MTNL as the price they both have to pay for their 3G spectrum has to match the highest winning auction bids in each of the respective circles.

Will Draper, analyst at investment firm Execution Ltd. commented: “According to Vodafone, India will definitely complete its auction of 3G wireless by end 2009 but given that this is the second delay, we can’t be sure the new deadline will be met. The delay however represents good news for Vodafone since demand for 3G licences is falling each month as potential new entrants fade away and consolidation reduces the number of incumbent bidders, which in turn means the price of spectrum is coming down.”

But the bad news for Vodafone India is that its spectrum is constrained, with as little as 4-5MHz in many of its circles, which will eventually lead to capacity and growth problems. Execution doesn’t believe this is an acute issue yet, but subscriber growth of more than 2 million a month means that it is a growing problem.

Indian regulator the TRAI reported April subscriber data earlier this week with Vodafone faring well with 2.77 million net subscriber adds, following Bharti Airtel with 2.81 million and putting some considerable distance between it and Reliance with 2.17 million. Vodafone is now third in the market with 17.7 per cent market share, and is set to overtake Reliance at 18.5 per cent if current trends continue, Draper said.