BSNL Scraps Monster Mobile Tender

After years of controversy over its GSM mobile network plans, Indian state-owned carrier Bharat Sanchar Nigam Ltd. (BSNL) appears to have scrapped its massive 93 million-line tender process, which began in the first half of 2008.

The move follows a report into the carrier by a committee led by Sam Pitroda, adviser to India's Prime Minister on public information, infrastructure and innovation. Pitroda backed the findings of an earlier report from the country's Central Vigilance Commission, which recommended that the original tender be scrapped because of concerns that competitive guidelines had not been followed and the best deals could not be secured.

The decision to abandon the giant tender is not only negative for BSNL, which now needs to start again with its GSM capacity expansion plans, but also bad news for the companies that were in line to land significant purchase orders.

The main companies affected are Ericsson AB (Nasdaq: ERIC) and Huawei Technologies Co. Ltd. , which had each been chosen to provide radio access network (RAN) equipment in deals set to be worth billions of dollars. (See Huawei Touts $2B Deal From BSNL .)

In addition, significant Service Provider Information Technology (SPIT) systems deals were set to be awarded as part of the GSM capacity upgrade. HCL Infosystems Ltd. , in partnership with HP Inc. (NYSE: HPQ) and Convergys Corp. (NYSE: CVG), is believed to have been in line for a deal worth 20 billion Indian Rupees ($440 million), according to The Economic Times.

BSNL's tender, first unveiled in May 2008, has long been mired in controversy, particularly since it dismissed the bids of a number of vendors, including NSN, on technicalities. (See NSN Probes BSNL Bid Process, IndiaWatch: Tender Times at BSNL , and BSNL Floats New Mega GSM Tender.)

The ongoing delays left BSNL unable to capitalize fully on the amazing demand for mobile services of the past few years: In 2009, India's mobile operators collectively added more than 178 million new lines, ending the year with 525.15 million connections. BSNL ended last year with 62.9 million mobile customers, having activated 16.7 million lines during 2009. (See BSNL Struggles for Subs in May.)

The market leader, Bharti Airtel Ltd. (Mumbai: BHARTIARTL), added 33.2 million new lines during the same period to end 2009 with 118.9 million mobile connections. (See India Ends 2009 on a Mobile High.)

And with mobile number portability about to be introduced in India, BSNL might struggle further as it concentrates, once again, on having to add new capacity rather tempting customers from other operators.

The expectations of the market are that BSNL will now issue a number of smaller tenders for its GSM expansion, with the bidding and contract award process needing to start again. That opens the door for the likes of Alcatel-Lucent (NYSE: ALU), Motorola Inc. (NYSE: MOT), Nokia Siemens, and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) to re-enter the fray against Ericsson and Huawei.

BSNL is under the spotlight for other reasons too, currently, as its future ownership is being debated and its financial performance is being scrutinized. (See IPO Not the Cure for BSNL's Ills.)

— Gagandeep Kaur, India Editor, Light Reading