BSNL: Love Me Tender!

Indian carrier Bharat Sanchar Nigam Ltd. (BSNL) has lifted the lid on its long-awaited monster GSM/UMTS equipment tender that could be worth up to $4 billion in contracts to the winners. (See Mega BSNL Contract Looms.)

Analysts at Lehman Brothers say that with the carrier seeking bids for equipment that will provide 45.5 million new mobile lines, it is the "biggest GSM tender ever," and likely to be worth between $2.5 billion and $4 billion. But while this is "positive for [the] overall mobile equipment market," the analysts believe there are "continued concerns over pricing and margins."

Those concerns stem from BSNL's initial GSM network rollout: Nortel Networks Ltd. won a deal worth potentially $500 million, but the final value to the vendor was hundreds of millions less and resulted in massive losses. (See Nortel's Owens: Krazy About Korea.)

Still, that likely won't stop Nortel and the other main GSM infrastructure players -- Alcatel (NYSE: ALA; Paris: CGEP:PA), Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK), and Siemens Communications Group -- from submitting their proposals for the two-stage bidding process that will take place immediately after the closing time of 11:30 a.m. on April 28.

Those companies, at least, will meet the criteria set by BSNL. The carrier says that, to take part, bidding vendors must have 20 million GSM lines already installed in existing networks, including at least one instance of a network of at least 2 million lines, and must have supplied GSM networks in at least 10 countries.

They must also have supplied two UMTS (3G) networks with a capacity of 5 million subscribers that will have been commercially operational for at least six months by April 28.

They must also be profitable companies with an annual turnover of at least $1.8 billion per year.

Then, the crunch: At least 30 percent of the equipment supplied, by value, must be manufactured in India. This would be possible for the vendors mentioned above, but could put in doubt the potential success of any bids from Chinese vendors Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763).

"Most vendors have or are preparing to invest in Indian manufacturing," note the Lehman analysts in a research note issued today, but "right now, Huawei and ZTE have applied for a manufacturing license, but do not yet appear to have received these yet."

In addition, the analysts believe Huawei could struggle to meet some of the other requirements for the core network elements, and that "ZTE may struggle to meet the technical requirements of the tender."

And that's apart from Huawei's relationship problems with the carrier. (See BSNL Shuns Huawei.)

The successful bidders will then be involved in a three-phase build-out of 17.5 million lines in Phase 1, then 14 million lines in each of Phases 2 and 3.

The Lehman team believes "the superior economies of scale enjoyed by Ericsson, Nokia, and Siemens in GSM/WCDMA give all three a very strong platform for the bidding process," though they note that Motorola Inc. (NYSE: MOT) might submit a competitive bid: "The Indian market is also one of the last major GSM regions for Motorola, and it may be reluctant to lose more share."

Originally, the BSNL tender was due to be for about 60 million lines, but Alcatel and its Indian partner ITI Ltd. have already been handed a chunk of network expansion work. (See Alcatel Picks Up BSNL Business.)

— Ray Le Maistre, International News Editor, Light Reading