Indian Summer For Lucent

Lucent Technologies Inc. (NYSE: LU) looks set to win the lion's share of a CDMA equipment contract from Indian operator Reliance Telecom Ltd., in a deal that could be worth up to $1 billion to the vendor.

Wireless equipment analysts at Lehman Brothers believe Reliance has settled on its suppliers for a CDMA 1xRTT network that will cover the majority of India, and that the equipment deals on offer could be worth about $1.5 billion in total. Lucent is believed to be in line to win about 60 percent of the total, with Nortel Networks Corp. (NYSE/Toronto: NT) set to pick up about 30 percent and Samsung Electronics about 10 percent.

The decision comes at the end of a beauty contest, during which Nortel was long viewed as the potential lead contractor. The Lehman analysts believe Lucent's reputation and experience in CDMA may have tipped the balance in its favor. While Nortel is in line for a smaller piece of the pie, at least it is still involved: neither Ericsson AB (Nasdaq: ERICY) nor Motorola Inc. (NYSE: MOT) are thought to have been asked to participate in the network's construction.

No one at Reliance, which has licenses to cover about 95 percent of India's population, was available for comment as Unstrung went to press, while a Lucent spokesman limited himself to saying that "We have not announced anything on a contract with Reliance." The additional word "yet" seemed to dangle in the air. Nortel was equally cagey (no comment on rumor and speculation blah blah), but both companies did at least state they have been involved in talks with the Indian operator.

Winning any contract is pretty good news, especially these days, but this one is no small potatoes; a win of this magnitude would boost Lucent's standing in the wireless world, as well as swell its coffers. Indeed, Lehman regards this as a "major positive" for the vendor. "For Lucent, this represents a major incremental revenue opportunity amid speculation that its wireless prospects are weakening," state the analysts in a research note.

Official confirmation from the operator and vendors should be forthcoming, as the Lehman crew believes the carrier is keen to start construction in the coming months.

All of this, of course, is good news for CDMA patent king Qualcomm Inc. (Nasdaq: QCOM), as the technology gains another foothold in Asia. Indeed, Qualcomm is more than a little involved here, as it announced a planned investment of "up to $200 million" in Reliance back in January. Although that equity deal has not yet been finalized, the Lehman analysts believe Qualcomm has been holding off to be sure that the company's CDMA plans come to fruition. The award of the equipment contracts could "trigger" the investment, they add.

Qualcomm is a bit more guarded about its intentions, saying that its "obligation to make the $200 million investment became non-binding as a result of certain conditions under the agreement not being satisfied." However, "that does not mean Qualcomm will not invest $200 million," a spokeswoman tells Unstrung, adding that the vendor is "working closely" with Reliance, and that a "soft launch" of the service in India is expected this year.

India's mobile sector is set for substantial growth in the coming years, aided by regulatory initiatives. Reliance will be able to use its CDMA network to provide "limited mobility" services as part of its general telecom license, something that has enraged the country's GSM operators, holders of mobile licenses.

But such moves by the government, combined with low call rates, will see the number of mobile subscribers grow to 10 million by the end of 2002 from 8 million now, reaching 120 million by 2008, according to The Cellular Operators Association of India (COAI).

— Ray Le Maistre, European Editor, Unstrung
http://www.unstrung.com