The race for a share of Bharat Sanchar Nigam Ltd. (BSNL) 's $4.8 billion mobile network expansion contracts is down to two horses, with Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK) emerging as the lowest bidders thus far.

Five equipment vendors had been shortlisted for the technical evaluation stage -- the others being Motorola Inc. (NYSE: MOT), ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), and Siemens Communications Group , which will now be part of the Nokia deal under their joint venture. (See BSNL Sizes Up Five Bidders.)

BSNL will split the contracts for 45.5 million GSM lines between two companies, giving 60 percent to the vendor offering the lowest price per line and the remaining 40 percent to the second lowest bidder.

Ericsson spokeswoman Åse Lindskog confirmed it was the lowest bidder, but was quick to stress that the vendor doesn't yet have the contract. “This is another step in a long process…the evaluation is still ongoing,” she says.

Lindskog declined to comment on details of the bid, although various reports peg Ericsson's offer as somewhere between $107 and $110 per line. Ericsson stands to receive $2.9 billion if it's awarded the larger deal, a nice follow up to the $1 billion contract it recently signed with Bharti Airtel Ltd. (Mumbai: BHARTIARTL) (See Ericsson in $1B Bharti Expansion.)

Nokia and state-owned ITI, which has already been set aside an additional 15 million lines with its partner Alcatel (NYSE: ALA; Paris: CGEP:PA), will have to meet Ericsson's bid to receive their contracts. (See Alcatel Picks Up BSNL Business.) Shares in ITI were up 7.3 percent to 62.90 Rupees ($1.38) on the Bombay Stock Exchange after the news Monday.

BSNL is expected to announce its final decision in the next three or four weeks, but it could be held up by legal challenges.

Motorola hasn’t taken kindly to being dropped from the process, telling India’s news agency Press Trust of India that it’s taking BSNL to the New Delhi High Court to seek clarification on why it was disqualified at the technical stage.

BSNL has set a number of stringent requirements for vendors, including the stipulation that a third of the equipment should be manufactured in India, but Motorola notes that it's setting up a production facility near Chennai. (See Moto Plants Itself in India.)

PTI reports that the Indian Prime Minister’s Office has also taken issue with BSNL’s decision-making process, sending a letter to the Department of Telecom that alleges the specifications of the tender have been repeatedly changed “to protect the interest of some foreign firms.” Among its objections is BSNL's agreement with ITI, which means Alcatel was able to secure a chunk of the business without going through the evaluation process.

The news that BSNL is moving to the next stage of its network expansion plans comes as the Cellular Operators' Association announced that India added 4.39 million GSM subscribers during September, helping to push its mobile subscriber base to 127.83 million.

BSNL's subscriber base grew to 20.936 million as it added more than 876,000 million new GSM users. The carrier had originally planned to deploy its new equipment in two stages, but a shortage of capacity on its network has meant losing market share to the likes of Bharti and Reliance Communications Ltd. (RCom) -- prompting it to accelerate its rollout plans.

— Nicole Willing, Reporter, Light Reading