Major Vendors Scrap Over Outsourcing Deal

E-Plus Mobilfunk GmbH , the German mobile operator owned by KPN Telecom NV (NYSE: KPN), is close to awarding a network outsourcing contract worth an estimated €200 million ($262 million) per year to either Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), or Nokia Corp. (NYSE: NOK).

E-Plus chief executive Thorsten Dirks said at the 3GSM conference in Barcelona last week that he expected to award the contract by the end of this month. The operator plans to reduce its operating costs by 20 percent as a result of the outsourcing deal, with much of the cost reduction coming from the transfer of between 650 and 800 technical employees to the successful outsourcing provider.

But a report by Swedish newspaper Dagens Industri that Alcatel-Lucent is the frontrunner in the shortlist to manage E-Plus's GSM network, which provides service to about 10 million subscribers, has shocked at least one analyst.

"It is hard to fathom how Alcatel-Lucent could match the capabilities of either Nokia or Ericsson in the field of professional services," writes Per Lindberg, an analyst at Dresdner Kleinwort , in a research note issued today.

"We believe that should E-plus really decide to use Alcatel-Lucent, then it may have plenty of reasons to change partner in the relatively near future," adds Lindberg.

If the contract is awarded to the Franco-American vendor, it would be a blow to the impending Nokia Networks joint venture, as Nokia and Siemens Communications Group have provided nearly all the GSM infrastructure for the E-Plus network. (See Siemens Expands E-Plus.)

This outsourcing contract is theirs to lose, reckons the analyst.

"We find it quite remarkable that Alcatel-Lucent could even be considered. Alcatel has hardly any activity left in Germany," he notes, adding that Alcatel-Lucent's "roadmap in WCDMA is quite opaque." (See AlcaLu Makes Product Cuts .)

Ericsson would also be disappointed to lose the E-Plus outsourcing deal. The Swedish vendor won a similar contract worth €300 million ($394 million) over five years with Belgian operator Mobistar SA last week, and many other previous European managed services deals have been awarded either to the Swedish giant or Nokia. (See Ericsson Manages Mobistar, Nokia Wins Dutch Deal, Ericsson Wins Orange Deal, Nokia Wins at Wind, Ericsson to Run Xfera , Ericsson in Polish 2G/3G Project, and V'fone Netherlands Picks Ericsson .)

— Michelle Donegan, European Editor, Light Reading

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