With its plans for a nationwide GSM network stalled, Indian carrier Reliance Communications Ltd. (RCom) is spending $740 million to add capacity in the eight regions where it already has operations.

Reliance, which also runs a nationwide CDMA-based mobile network, applied last summer for licenses and spectrum to expand the coverage of its Reliance Telecom GSM subsidiary to all 23 regions of India. (See Reliance Dabbling With Dual Networks.)

But India’s Department of Telecom has balked at the prospect of allowing operators to run separate national networks, particularly in light of the country’s spectrum shortage. (See Reliance Squeezed by Spectrum Crunch.)

The Telecom Regulatory Authority of India (TRAI) is in the process of reviewing key license conditions, so Reliance’s plan to spend $7 billion on building out a national GSM network is on hold. (See Reliance Plans $7B GSM Build-Out.)

Instead, the carrier is ramping up capacity on the GSM network it’s already got, taking it from 3 million to 20 million lines during the next nine months.

To that end, Reliance this week awarded a $400 million equipment contract to Alcatel-Lucent (NYSE: ALU) and a $200 million deal to Huawei Technologies Co. Ltd. . (See Reliance Expands With AlcaLu and Huawei Wins at Reliance.)

A spokesperson recently told The Economic Times that the operator has also been in talks with ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) regarding GSM equipment.

Reliance has a capex budget of $2.5 billion for this financial year, and had intended to shift the bulk of its spending from CDMA to GSM. But the delay has forced it to keep building out its CDMA network to stay ahead of subscriber demand, so the AlcaLu and Huawei contracts are for the supply of both GSM and CDMA infrastructure.

In all, Reliance intends to double the capacity of its CDMA network from 35 million to close to 70 million lines. It added 1.4 million customers in May alone, bringing its total to 30.5 million.

That explains why Reliance is making nice with CDMA patent holder Qualcomm Inc. (Nasdaq: QCOM) after a spat over royalty fees for handsets, which had been part of the rationale for switching to GSM. The two companies issued a statement Monday trumpeting their partnership and announcing plans to expand Reliance’s CDMA2000 network to more than 20,000 towns and villages. (See Reliance, Q'comm Tout CDMA.)

Reliance had argued that Qualcomm was charging higher royalty fees in India than in countries such as China, and that the fees were inflating its operational costs as it tried to compete with GSM players.

The dispute had Qualcomm executives hopping on a plane to India to patch things up with the carrier, which accounts for more than 70 percent of India's CDMA market. Qualcomm hasn't reduced the royalty fee, but it has agreed to share technology and provide licenses to equipment vendors so they can manufacture handsets in India and bring down prices.

That has allowed Reliance to enter a joint venture with Taiwanese vendor Cal-Comp Electronics (Thailand) PCL to make CDMA phones in India. The companies plan to open a manufacturing plant in the first half of next year, and Reliance has increased its order with Cal-Comp from 3 million phones to 12 million.

— Nicole Willing, Reporter, Light Reading