Reliance, which offers CDMA and GSM services across India and claims more than 117 million wireless connections, says $1.33 billion will go towards the refinancing of its 3G spectrum fees, while up to $600 million will be used to procure equipment and services from Chinese vendors Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763)
The operator, which has just launched its 3G services, notes that the loan arrangement allows it to "benefit from… substantial savings in interest costs." (See A Blow to India's 3G Vanguard and Reliance Com Joins India's 3G Club.)
Reliance won 3G licenses in 13 of India's 22 circles (service areas) in the spectrum auction held earlier this year. It awarded 3G deals to ZTE in eight circles, and to Huawei in the remaining five. (See Ericsson's India Crown Under Threat and Reliance Hands 3G Deal to ZTE.)
Reliance, which isn't the only Indian operator to have tapped the Chinese loan market, also notes that this loan is in addition to a separate $750 million facility that has already been used to fund purchases from the two Chinese vendors. (See IndiaWatch: Probes, Profits & Payments.)
Why this matters
Being able to package significant loans alongside equipment and services gives Huawei and ZTE an extra edge when trying to win deals, especially in emerging markets, and it looks like the access to competitive loan terms has helped the Chinese duo build a strong position at one of India's main operators. (See Huawei's Lucky Number: 30B, Huawei, ZTE Strike New Funding Deals, and ZTE Secures $15B, Highlights R&D.)
Having such financial support at hand will also help Huawei and ZTE rebuild their businesses in India following this year's security-induced purchase order hiatus. (See India Clears Chinese Gear Orders.)
The big question is: If every vendor had the same support from national banks as the two Chinese vendors currently do, would that alter the procurement decisions of carriers such as Reliance Communications?
Certainly, Huawei and ZTE's rivals regard the financial support of the Chinese banks as unfair, but they currently have to accept it as part of the regular competitive landscape.
India's equipment and professional services market is one of the most competitive and cut-throat in the world:
- Huawei Earmarks $2B for India R&D
- India Telecom 2010: AlcaLu, ZTE Win at BSNL
- Analyst: LTE TDD Will Reach India in 2011
- Vendor Price Gaps: A Thing of the Past?
- 3G Heralds Managed Services Shift in India
- AlcaLu Opens Ops Hub in India
- India's 3G Equipment Market a 'Bloodbath'