Alcatel Picks Up BSNL Business
Although the bidding process has been delayed -- again -- state-run BSNL now says it will award part of the contract to ITI to supply its mobile network in the western region of the country, and put the other regions out to tender.
“Between 25 and 30 percent is clearly earmarked for ITI,” as a government owned company, says Sridhar Pai, founder of analyst firm Tonse Telecom . That equates to somewhere between 15 million and 18 million GSM lines out of the total 60 million BSNL wants to order. (See Mega BSNL Contract Looms.)
Under its partnership with ITI, Alcatel supplies core switches, applications, and technology licenses for GSM base stations, and receives 30 percent of the revenues on joint contracts. The vendors recently opened a second production facility in one of ITI's factories to double capacity. (See Alcatel, ITI Collaborate and Alcatel Opens India Facility.)
James Crawshaw, contributing analyst for Light Reading Insider, reckons the development is “good news for Alcatel as the contract is likely to be highly profitable, unlike many supply contracts with BSNL.” (See Nortel's Owens: Krazy About Korea.) It also gets the benefits of supplying the kit "without the risks associated with radio access network rollout. ITI makes the base stations (under license from Alcatel) and handles their deployment."
If it receives 30 percent of ITI’s 30 percent, “Alcatel should book $405 million, which is equivalent to around 8 percent of their mobile infrastructure sales last year,” Crawshaw adds. The vendor declined to comment for this article.
The partnership also means Alcatel can sit out of what is expected to be a fierce bidding process.
This leaves Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK), Motorola Inc. (NYSE: MOT), Nortel Networks Ltd. , Huawei Technologies Co. Ltd. , and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) to "slug it out" for the remaining 70 percent of the contract, notes Crawshaw. But “winning the business could prove to be a poisoned chalice, given fierce pricing pressure. Recent press stories about BSNL criticizing equipment suppliers including Huawei, Nortel, and Ericsson suggest this is a tough customer to please.”
Aside from a disagreement with Huawei, which defaulted on a contract, BSNL has filed complaints with Ericsson over poor network quality causing dropped calls and Nortel for delays in deploying equipment. (See BSNL Shuns Huawei and Huawei Doubles Overseas.) Pai at Tonse Telecom notes these are the kind of issues that would make the carrier “probably think twice” before awarding them more business.
Reports also suggest BSNL intends to incorporate stiff bank guarantees and other safeguard clauses into the contracts to try and prevent future delays to its network rollout. "There are lessons in this for everyone," says Pai. "It doesn't make sense for everyone to go with the lowest price if they can't deliver -- everyone needs to stay healthy for the industry to grow."
— Nicole Willing, Reporter, Light Reading