Aug. 29 (Bloomberg) -- Vodafone Essar Ltd., an Indian unit of the world's biggest mobile-phone operator, and its peers may be allowed to acquire as much as 20 percent of rival operators to increase share in the fastest-growing wireless market.

Operators in India may purchase an initial 10 percent, which can be doubled after securing approval, under proposals sent to the telecommunications ministry, said Nripendra Misra, chairman of the Telecom Regulatory Authority of India. The regulator also recommended there be no limit on the number of carriers offering services.

The South Asian nation, with more than 190 million mobile subscribers, wants to spur competition to increase wireless penetration of less than 18 percent. Vodafone Group Plc. had to pare its holding in Bharti, India's biggest operator, when it took control of the nation's third-biggest provider this year.

``The industry has room for consolidation, leaving financially stronger players to further expand the sector,'' said K.K. Mital, who manages the equivalent of $37 million of stocks at Escorts Asset Management in New Delhi.

No consolidation will be allowed in a specific telecommunications zones if the number of phone companies operating there falls below four, the regulator said.

The regulator recommended that a company shouldn't be allowed to take over a rival if its market share exceeds 40 percent of subscribers in the circle.

Opening Airwaves

The regulator also recommended prices for some airwaves, or spectrum that allows wireless services to function, be raised to ensure efficient use of this scarce resource.

The government currently charges a certain percentage of an operator's revenue as cost of spectrum which varies between 2 percent and 6 percent. This percentage may be raised to between 2 percent and 8 percent under the proposals. Additionally, all spectrum excluding that in 800, 900 and 1,800 MHz bands, be auctioned in the future, the regulator said.

Indian carriers are facing a shortage of spectrum in cities such as New Delhi and Mumbai, the two largest telecommunications markets. Strong subscriber growth has resulted in frequent call drops and a deterioration in quality of mobile-phone services.

A large part of spectrum is with the defense ministry, which is in talks with the telecommunications ministry on the release of these airwaves. The proposed release has been repeatedly delayed.

To contact the reporter on this story: Ashok Bhattacharjee in New Delhi at ashokb@bloomberg.net.

Last Updated: August 29, 2007 08:41 EDT