Upheaval in India's Mobile Market

NSN opts out of BSNL deal, carriers form mobile tower joint venture, and Reliance is ready to go nationwide with its GSM network

December 10, 2007

4 Min Read
Upheaval in India's Mobile Market

It's been a busy few days in India's mobile market, with Bharat Sanchar Nigam Ltd. (BSNL) , Vodafone India , Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Idea Cellular Ltd. , Nokia Networks , and Reliance Communications Ltd. (RCom) at the heart of the action.

Nokia Siemens spurns BSNL deal
After months of negotiations, Nokia Siemens has decided not to become one of the major GSM infrastructure suppliers for BSNL's massive network expansion project.

The vendor had been offered a contract worth around $875 million to supply GSM equipment for 9.63 million new mobile connections, but it has walked away from the deal because the terms were financially unfavorable. (See BSNL Lines Up GSM Options.)

"The pricing and terms and conditions were such that we do not see this opportunity as a sustainable one," says the company in an emailed response to questions.

Nokia Siemens is looking for ways to increase its margins after a difficult first seven months of operations -- taking on the BSNL deal, while adding to the top line, would have put pressure on the company's financial strategy. (See Nokia-Siemens Balks at BSNL Contract and NSN Improves, Confirms Extra Cuts.)

Now BSNL, India's fourth biggest mobile operator with more than 31 million subscribers, needs to place the order elsewhere. Ericsson, which has already struck a deal to supply the carrier with equipment for 13 million new GSM connections, was one alternative, but has reportedly turned down the offer. (See BSNL Awards $1.3B GSM Contract.)

Whereas Nokia Siemens couldn't identify any profit potential from the deal it was offered, Ericsson's scale could have made an extension of its existing contract attractive, according to analysts at Dresdner Kleinwort .

However, capacity was always going to be an issue for Ericsson. "Given the enormity of emerging market wireless demand, Ericsson's greatest challenge is not to find new customers but rather to allocate its resources in the wisest of fashion," stated the Dresdner team in a research note.

Carriers for mobile tower venture
Three of India's GSM mobile operators, Vodafone Essar, Bharti Airtel (through its subsidiary Bharti Infratel Ltd., and Idea Cellular, have formed Indus Towers, an independent company that will provide mobile tower sites and services to all operators "on a non-discriminatory basis." (See Indian Carriers Form Co..)

Bharti, one of our Top Ten: Emerging Markets Carriers, and Vodafone will each own 42 percent of the company, and Idea the remaining 16 percent. Bharti is India's biggest mobile carrier, with nearly 51 million customers, while Vodafone Essar is in second place with more than 37 million. Idea has nearly 20 million customers.

The partners say this is a "major step towards achieving the Government’s vision and TRAI’s recommendations for passive infrastructure sharing and will create a lower cost and more competitive operating environment for mobile operators in India." (See Indian Carriers Form Co..)

Previously, Vodafone signed an agreement with Bharti Airtel to share around 70,000 mobile towers in order to speed up network rollout in rural and suburban areas. (See Bharti Welcomes Vodafone.)

Those towers, plus other assets, will be folded into the new company, which will now build out new tower sites in 16 of India's 23 telecom "circles" (geographic markets).

Analysts at Dresdner believe a further 30,000 tower sites will be developed, and that the move will free up capital expenditure that can now be used to buy more network equipment.

India is one of the fastest growing mobile markets in the world. According to the latest statistics (end of October), the country has more than 216 million mobile subscribers, with more than 7 million new accounts being signed up each month. (See India Racks Up Mobile Subs.)

Reliance ready to expand
CDMA operator Reliance has taken delivery of its new, nationwide GSM license, and is set to extend its GSM network beyond the current eight circles in Central and Eastern India across the whole country, adding 70 million lines of new capacity.

The carrier, currently the country's third largest mobile operator with about 5.1 million GSM subscribers and more than 32 million CDMA customers, received government approval for its expansion plans in October. (See Reliance Gets GSM Nod.)

Now the race is on to see which vendors can land the network expansion contracts. Reliance began inviting bids a year ago, with local reports valuing the project at $7 billion, though that figure has been modified to around $5.7 billion. The carrier is believed to have received RFP responses from Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), and Motorola Inc. (NYSE: MOT). (See Reliance Plans $7B GSM Build-Out.)

— Ray Le Maistre, International News Editor, Light Reading

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