BSNL to Award $4.5B Mobile Contracts

Indian state-run carrier Bharat Sanchar Nigam Ltd. (BSNL) is finally ready to award mobile network equipment contracts worth a combined $4.5 billion to Ericsson AB (Nasdaq: ERIC) and Nokia Networks , after a six-month delay.

A spokesman for the operator says it's drawing up detailed purchase orders for GSM equipment that will be awarded by early next week to the winners of last year's tender process. (See Ericsson, Nokia Bid Low for BSNL.)

The contracts were due to be signed back in November, when Motorola Inc. (NYSE: MOT) threw a spanner in the works by filing a lawsuit that claimed it was unfairly disqualified from the running and barred BSNL from proceeding with the orders. Motorola withdrew the case last month, conceding that the hold was hampering the growth of telecom infrastructure in India as BSNL struggled to keep up with the country's massive increase in subscribers. (See Court Delays Cost BSNL Millions and Moto Stalls BSNL's Wireless Tender.)

BSNL's spokesman characterized the episode as a "communication gap" between the two companies and says the carrier is "grateful" that Motorola has stepped aside. "We have put it behind us... We will be in business with them in the future," he says. [Ed. note: Or not.]

The new contracts form phase two of a massive network expansion project and will be split 60-40 between Ericsson and Nokia Siemens, the two lowest bidders. The Swedish vendor will pocket $2.7 billion and the remaining $1.8 billion will go to Nokia Siemens.

The equipment will allow BSNL to expand its overloaded network by 45 million subscriber lines in three phases, starting with a deployment of 17.5 million lines by the end of the year. The carrier has already awarded an additional $1.8 billion contract to state-run vendor ITI Ltd. and its partner Alcatel-Lucent (NYSE: ALU) for 18 million lines to comply with government requirements. (See Alcatel Picks Up BSNL Business.)

The carrier's spokesman says it has a "two-pronged strategy" for network expansion that it will roll out over the next four to five months. "There is some equipment we can take immediately that we will use to augment capacity -- then we can expand into new areas on a monthly basis," he says.

That's the fastest way to get the equipment up and running a network that is pushing against the limits of its capacity. BSNL has been able to ease some of the congestion by placing a follow-on order for 4 million lines to phase one vendors Ericsson, Nokia, and Nortel Networks Ltd. in February, a move that was unaffected by the Motorola court case. (See 3GSM: India News Roundup.) But the operator has been losing ground in the race for GSM market share to Bharti Airtel Ltd. (Mumbai: BHARTIARTL), now the country's largest mobile operator with 38.89 million subscribers, and Hutchison Essar (soon to be Vodafone Essar).

BSNL signed up just 326,000 new customers in April, compared with its usual growth rate of close to 2 million, and ended the month with 27.74 million mobile subscribers. Hutchison Essar added 1.3 million mobile subscribers in April for a total of 27.70 million, pulling its market share to 22.06 percent and almost level with BSNL's 22.10 percent.

With India's mobile subscriber base growing by more than 6 million every month, BSNL is already looking ahead to the next capacity crunch and has said that it could place follow-on orders with Ericsson and Nokia. Nokia was also the beneficiary of Idea Cellular Ltd. 's growth this week, scoring a $500 million contract with the country's fifth largest mobile operator. (See Nokia Siemens Gets IDEA.)

— Nicole Willing, Reporter, Light Reading