Six Telecoms-Equipment Vendors Bid for BSNL Tender for 93 mil. GSM Lines

Bidders in the tender for a total of 93 million GSM lines include Ericsson, Nokia Siemens Networks, Huawei Technologies, ZTE Corp, Alcatel-Lucent, and Nortel Networks, the Economic Times reports, citing BSNL chairman Kuldeep Goyal, who added that BSNL is looking to pay less than US$100 a line. The GSM contract is split into four regions: 25 million lines each for the North, South and West Zones, and 18 million for the East Zone. The tender conditions stipulate that one company cannot be awarded more than two zones, implying that the maximum order that an equipment vender can bag is for 50 million lines. Goyal said two firms had bid for all zones in tender, adding that in each zone there are at least four bidders. The bids will first be evaluated on technical grounds and the short-listed bidders will move to the second round, where the prices quoted by each firm will be compared. BSNL expects the first orders, for 33 million lines, to be placed by the end of the year or in early 2009.

In a move to create more competition, BSNL has also divided the tender into four components, 2G lines, 3G lines, infrastructure, and operating and business support systems (OSS & BSS). This implies that companies can bid individually for any of the four components, or a single company can also bid for all the components. About 10 stand-alone tower firms have also submitted bids for setting up towers. BSNL will now evaluate the cost benefit ratio of splitting the contract among telecoms equipment majors and independent tower companies. The independent tower firms include Esstel, GTL, Tecmet, KEC International, Nextra, Teracom, TVS, Acme Telepower, Esstel, Aster, and Susana Towers. The bids for OSS & BSS will be opened on 30 September.

Outlook and Implications

• Network Expansion for Growth: The lack of network coverage and capacity has hampered the growth pace of BSNL's mobile subscribers. The state-owned operator now has less mobile customers than private operators Bharti Airtel, Reliance Communications, and Vodafone Essar. At the end of July, BSNL had 42.53 million mobile subscribers, compared with Bharti's 72.09 million, Reliance's 52.54 million, and Vodafone's 50.95 million. BSNL had in 2006 issued a tender for 23 million GSM lines, which turned into a protracted bidding process, first delayed by the legal battle with Motorola, which took BSNL to court over its disqualification from BSNL's previous tender on technical grounds. Ericsson, the lowest bidder, was eventually (in September 2007) awarded a contract to provide 13 million lines at about US$91 per line. However, both Ericsson and Nokia Siemens Networks, the second-lowest bidder, turned down the offer to provide the remaining order at the same price (see India: 11 December 2007: Ericsson Rejects Additional Contract from BSNL).
• Concerns for Equipment Vendors: Despite the massive size of the deal, bidders should take a cautious approach in terms of pricing, as fighting for the contract at all costs could erode their margins. Ericsson, for example, has experienced declines in margins due to contracts for building new networks in emerging markets, and is now working on rebuilding margins and investor confidence (see World: 22 July 2008: Ericsson Q2 Sales Up 2% as Fortunes Rebound and World 25 April 2008: Ericsson's Fortunes Improve with 5% Rise in Q1 Sales). As the BSNL contract is split into four regions and four components, some will be focused on the more lucrative parts of the deal such as 3G lines. China's Huawei and ZTE, which are aggressively expanding into the international equipment markets, could emerge as some big winners for the deal, thanks to their cost advantages. Ericsson is currently the top supplier of telecoms-network equipment in India in terms of revenues, followed by Nokia Siemens Networks and Alcatel-Lucent.