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Mobile

Ericsson Scores $2B at Bharti

Ericsson AB (Nasdaq: ERIC)'s major deal with Bharat Sanchar Nigam Ltd. (BSNL) might have temporarily stalled, but the vendor is celebrating an even bigger win -- a whopping two-year, $2 billion network expansion contract with BSNL rival Bharti Airtel Ltd. (Mumbai: BHARTIARTL). (See Ericsson Wins $2B Bharti Deal.)

The contract is Ericsson's largest ever network expansion deal and comes as Indian mobile carriers rush to add additional capacity to handle subscriber growth and make a push into rural areas, where more than two thirds of the country's 1.1 billion people live.

For $1 billion a year, Ericsson will provide India's largest carrier with GSM/GPRS equipment and managed services in 15 of India's 23 telecom regions, called "circles." It will also supply its intelligent network-based prepaid platform, location-based technology, and integrated device management for advanced data services in all 23 regions.

Bharti is laying the groundwork for an IP-based network in preparation for the move to 3G services, and the core equipment includes Ericsson's Mobile Softswitch and Mobile Packet Backbone Network.

Bharti signed a similar deal with Nokia Corp. (NYSE: NOK) two weeks ago to cover the other eight circles, valued at $900 million. (See Nokia Siemens Lands $900M India Deal.) It also has a service delivery platform deal with IBM Corp. (NYSE: IBM). (See IBM to Manage SDP for Bharti .)

Dresdner Kleinwort analyst Per Lindberg notes that the contract triples the value of Ericsson's business from Bharti, building on a deal the operator awarded in August last year worth $1 billion over three years. (See Ericsson in $1B Bharti Expansion.) "It should... have a most discernible impact on Ericsson's sales and earnings momentum as well as its market share advance. US$1bn pa [per annum] adds ~5% to its mobile network and professional business volume that rose to ~US$20bn last year," he writes in a research note issued this morning.

Ericsson's share price was up slightly by 0.12 Swedish kronor (0.43%) to SEK27.84 (US$4.18) in midday trading on the Stockholm exchange. Bharti’s share price on India's National Stock Exchange rose as much as 3.57 percent to 895.5 Indian rupees before closing at INR884.7 (US$21.99).

Lindberg believes that "an order of this magnitude certainly has tactical ramifications" for Bharti's rivals. "It could help BSNL -- the state owned carrier is at risk at being relegated into the second tier -- to sharpen its mind. Its subscriber growth has come to a sudden halt." BSNL's network expansion has been caught up in wrangling over costs with India's new telecom minister, and the carrier is likely to reduce the size of its contracts. (See BSNL Expansion Delayed Yet Again.)

Lindberg continues: "It illustrates one of our salient points. So long as free competition persists, operators will have no choice but to invest in continuous capacity additions and quality enhancements. Those that choose to procrastinate will inevitably face customer defections and market share losses."

Bharti led mobile growth in India during June, adding 1.96 million new subscribers to take its subscriber base to 42.7 million.

— Nicole Willing, Reporter, Light Reading



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