An eagerly awaited decision about suppliers of $4.5 billion worth of orders by India’s state-owned phone company Bharat Sanchar Nigam may be dampened by one of the bidders going to court, but may still provide an opportunity for Ericsson to get nearly $3 billion worth of orders.
Bharat Sanchar Nigam Ltd. (BSNL) on Monday opened tenders (or bids) by five equipment manufacturers and disqualified Schaumburg, Illinois-based Motorola and China-based ZTE on technical grounds.
Motorola promptly went to court to challenge the phone company’s decision and wants more clarification and transparency in the process. But Swedish telecommunications manufacturer Ericsson said it has emerged as the lowest bidder and thus qualifies to be the largest supplier of infrastructure equipment.
Finland’s Nokia quoted the second-lowest rates and has also qualified to supply equipment. The BSNL tender had stringent criteria, following a troubled past with several global equipment vendors, including Nortel Networks and Ericsson, as well as the Chinese vendor Huawei.
Stiff Terms
The terms required 20 million lines to have been already installed by the bidders, including one running network with at least 2 million lines, in order to participate.
Each vendor must also have supplied GSM (global system for mobile communications) networks in at least 10 nations, and must have two 3G (third generation) networks in operation with a capacity of at least 5 million users operational for six months prior to May 2006.
German multinational Siemens is reported to be third in the running for BSNL’s contract to lay 62 million GSM lines and supply 3G equipment. Of the 62 million lines on offer, 15 million have already been reserved for ITI, an Indian state-owned manufacturer of telecom equipment.
ITI has partnered with French telecom giant Alcatel to manufacture telecom equipment at ITI’s existing plants. The Alcatel-ITI team is guaranteed an order of about 20 million lines worth $450 million.
The chosen vendors will also have to manufacture about 30 percent of the equipment in India. Both Nokia and Ericsson already have large plants operating in India. Ericsson has a unit in the desert state of Rajasthan, while Nokia has set up an integrated facility in the southern state of Tamil Nadu.
A Reuters report quoted unnamed sources as saying that Ericsson’s bid was $107 per line, valuing Ericsson’s share of the tender at $2.92 billion.
Despite the report, shares of Ericsson fell $0.07 to $35.20 in recent trading.
The lowest bidder gets to supply 60 percent of the order for 45.5 million lines, while the second-lowest bidder has to match the price and gets to supply the rest of the equipment after accounting for Alcatel-ITI’s share. Alcatel-ITI will also have to match Ericsson’s price.
Phone Connections for the Holidays
BSNL officials said earlier this year that nearly half the new equipment would be used in rural areas, where almost a third of India’s 1.1 billion people live, some of them with no communication links to the outside world.
The infrastructure buildout is absolutely necessary as a large number of new subscribers join the wireless revolution in India every month.
In September, service providers for the rival technologies, GSM and CDMA (code division multiple access), together added more than 6 million new subscribers.
The holiday Diwali season is around the corner, a time to celebrate and purchase goodies in India. Observers have no doubt that several million Indians will give themselves a mobile phone connection for the holidays.
Contact the writer:KShah@RedHerring.com
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