BSNL Sizes Up Five Bidders

After several delays and deadline extensions, Bharat Sanchar Nigam Ltd. (BSNL) closed the lid on its mammoth $4.5 billion wireless tender Monday, receiving submissions from five equipment vendors.

Of the 18 companies that requested the paperwork, bids came in from Ericsson AB (Nasdaq: ERIC), Motorola Inc. (NYSE: MOT), Nokia Corp. (NYSE: NOK), Siemens AG (NYSE: SI; Frankfurt: SIE), and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). Other potential bidders were likely turned off by a stringent list of conditions that included the ability to supply at least a third of the equipment from manufacturing plants in India. (See BSNL: Love Me Tender!)

Noticeably absent from the list is Nortel Networks Ltd. , which got burned by its $500 million contract for phase one of BSNL’s network buildout and decided to sit this one out.

According to Lehman Brothers analysts, "Nortel lost about $0.50 on every $1 in sales to BSNL in phase 1," but had originally hoped to pick up a profitable contract in phase two. (See Mega BSNL Contract Looms.)

Phase two calls for 60 million 2G and 3G lines to be rolled out over the next three years. In the first year, 75 percent will be GSM and 25 percent UMTS, with those ratios reversing by the third year.

Alcatel (NYSE: ALA; Paris: CGEP:PA) bypassed the competition thanks to its partnership with ITI Ltd. , a public sector vendor that was set aside an order of 15 million lines to fulfill a government quota. (See Alcatel Picks Up BSNL Business.)

The remaining 45 million lines will be divided between two contracts that will go to the two lowest bidders that meet BSNL’s technical requirements. BSNL chairman and managing director A. K. Sinha told the Press Trust of India news agency that the carrier has set up a special committee to evaluate the bids, a process he expects to take up to three months.

Sinha said Chinese vendor Huawei Technologies Co. Ltd. was not barred from participating in the tender, which the carrier had previously threatened to do after Huawei and its local partner defaulted on a contract. (See BSNL Shuns Huawei.)

With its plans to build production facilities held up by the Indian government, Huawei needed a partner with local manufacturing capabilities to be eligible for the bidding process. According to local media reports, Huawei is believed to be bidding indirectly through Motorola Inc. (NYSE: MOT), which recently announced it is building a factory near Chennai that will be ready next year. (See Moto Plants Itself in India.)

That's a combination that makes sense, reckons James Crawshaw, contributing analyst for Light Reading Insider, as the Chinese vendor can help fill some gaps in the provision of switching equipment.

Crawshaw expects Ericsson and ZTE to be the final selections. Both are fresh off wins with other Indian carriers -- Ericsson is to supply Bharti with 60 million lines over the next three years, and ZTE has a deal with Tata to provide equipment for its rural expansion project.

But the analyst believes ZTE, should it be chosen, might face problems in meeting BSNL's expectations, given the carrier's track record in vendor relations, with Huawei in particular.

Crawshaw is not alone in his concerns: Lehman's analysts have stated in a research note that ZTE could struggle to meet the technical requirements of the tender.

All of India’s major carriers are in expansion mode as mobile subscriber numbers continue to skyrocket. According to the Telecom Regulatory Authority of India (TRAI) , carriers added 4.25 million in May alone, pushing the total number of mobile subscribers in India up to 101.17 million. That puts India into the top five countries in the world with more than 100 million mobile users, behind China, the U.S., Japan, and Russia.

BSNL added 400,000 users during May, taking its total subscriber base to 18 million and its market share to 23.9 percent.

— Nicole Willing, Reporter, Light Reading