* Operators can keep some high-quality airwaves-official
* Will have to pay auction-based price
* Carriers say they risked losing connectivity (Adds details, background)
By Arup Roychoudhury
NEW DELHI, Nov 1 A panel of Indian ministers says telecom operators fighting the withdrawal by government of high quality airwaves will be allowed to keep some of their spectrum holdings, according to a government official.
Market leaders Bharti Airtel and Vodafone's India unit -- two of the country's oldest carriers -- will be hit hardest by the replacement of 900 MHz band spectrum by lower quality 1800 Mhz band capacity.
The panel's concession will allow carriers to retain 2.5 Mhz of spectrum, offering relief to operators who said they risked losing connectivity.
The companies will have to match an auction-based price for the 2.5 Mhz of capacity they are allowed to retain and buy any additional spectrum they need from the auction, said the government official who asked not to be named.
He said the panel's decision was final.
Carriers will have to build more mobile masts and replace some existing gear for the spectrum switch, which they estimate will cost them billions of dollars.
The auction for 900 Mhz spectrum will have to be conducted by March, the source said.
A separate auction of spectrum in the 1800 Mhz band is due to start on Nov. 12 following the decision by India's Supreme Court to revoke permits issued in a scandal-tainted sale in 2008, which has affected the licences of eight carriers.
The panel also proposed that carriers buying other telecom companies will have to match auction-determined prices for airwaves they acquire from the target company, the official said.
This proposal, along with a recommendation for a surcharge on airwaves holdings, will be considered by the cabinet on Nov. 8, the official said. (Reporting by Arup Roychoudhury; Additional reporting by Devidutta Tripathy; Writing by Aradhana Aravindan; Editing by David Cowell)