BSNL Lines Up GSM Options

Indian carrier Bharat Sanchar Nigam Ltd. (BSNL) is on the brink of withdrawing a GSM equipment contract worth around $875 million from Nokia Networks after talks between the two companies reportedly broke down.

The vendor isn't keen on the financial terms of the deal -– around $90 per line for mobile access infrastructure that can serve around 9.63 million new GSM connections –- as it is keen not to engage in any contracts that will further impact its margins. Nokia Siemens had originally quoted $170 per GSM line. (See Nokia-Siemens Balks at BSNL Contract and NSN Improves, Confirms Extra Cuts.)

Meanwhile, BSNL needs to increase its capacity as quickly as possible to keep up with GSM customer demand, and has already agreed a $1.3 billion contract for 14 million GSM lines with Ericsson AB (Nasdaq: ERIC). (See India Racks Up Mobile Subs and BSNL Awards $1.3B GSM Contract.)

Ericsson, as GSM infrastructure market leader, has the scale to still make money from low-price contracts, though price competition in the wireless market is starting to hurt it too. (See Ericsson Predicts Weak Q4.)

Now BSNL's chairman Kuldeep Goyal has told Indian reporters that, with price still a sticking point between the carrier and Nokia Siemens, his company is considering three options while negotiations continue: awarding the remaining 9.6 million lines to Ericsson; engaging with BSNL's existing GSM suppliers; or issuing a new tender document.

Goyal, who could not be reached for additional comment Friday, expects to announce a decision within the next month.

Among BSNL's GSM suppliers are Nortel Networks Ltd. , another vendor that's not keen on margin-crunching deals these days, and Motorola Inc. (NYSE: MOT), which has soured its relationship with BSNL by initiating a legal challenge against the carrier's vendor evaluation processes late last year. (See BSNL Selects Nortel, Court Delays Cost BSNL Millions, and Moto Wins in India.)

Alcatel-Lucent (NYSE: ALU) is also supplying GSM gear to BSNL through partner ITI Ltd. , having been awarded a deal to provide 15 million GSM lines early last year. (See Alcatel Picks Up BSNL Business.)

Nokia Siemens had not responded to questions as this article was published.

— Ray Le Maistre, International News Editor, Light Reading

litereading 12/5/2012 | 2:58:22 PM
re: BSNL Lines Up GSM Options of the price wars in India. Nobody makes money there on a fully loaded basis. Western economies have subsidized the business but that's coming to an end. With the Euro increasing in value, the same number of dollars means fewer Euros. Wait until Ericcson's next earnings diaster.

Economics has a way of creating balance out of imbalance. It is only a matter of time that operators in India pay fair value - which is higher than they are paying today. It will happen in China eventually, too, once their currency is allowed to float to a fair exchange rate.
Stefan Sip 12/5/2012 | 2:58:21 PM
re: BSNL Lines Up GSM Options Continuing the economic them, the reason there is no "fair value" is due to over-supply (too many vendors). All the vendors mentioned in the article, Ericsson, NSN, ALU, Moto, and NT have had less than a stellar year, yet they still go to war on these money-losing deals, because they still think they can make it up on volume. Now with ZTE and Huawei in the mix, there are 7+ vendors fighting for the same pie.

The the USD going south faster than Mexican water going through my bowels, European vendors doing significant business in the US or countries whose currency is pegged to the USD have an additional pricing pressure in the tune of 15% a year (that's the compounded loss of USD over the past 5+ years).

Anyway you cut it, it is ugly out there.
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