Nokia-Siemens Balks at BSNL Contract
After more than a year of delays in getting the contracts out for bidding, a court case from Motorola Inc. (NYSE: MOT), and the intervention of a new communications minister in the Indian government, BSNL settled on stripped-down contracts with Ericsson AB (Nasdaq: ERIC) and Nokia Siemens for a total of 23 million GSM lines -- half of its original 45 million line project. (See BSNL Expansion Delayed Yet Again and BSNL to Award $4.5B Mobile Contracts.)
In September, the carrier awarded a $1.3 billion contract for 14 million lines to Ericsson as the lowest bidder, and offered the remaining share to Nokia Siemens on the condition that it meet Ericsson's price of around $90 per line. (See BSNL Awards $1.3B GSM Contract.)
But the deadline for the vendor to accept the purchase order passed last week, with reports indicating it has expressed difficulty in meeting the terms of the contract. Nokia Siemens had originally quoted $170 per line to Ericsson's $107, which was renegotiated following the intervention of IT and Communications minister A. Raja.
In a research note issued Friday, Dresdner Kleinwort analyst Per Lindberg writes: “The hesitance displayed, we infer, reflects difficulties matching Ericsson's unit costs. It may also herald tacit attempts to restore pricing discipline in the besieged market for mobile networks.”
“Nokia, for its part, is one of the key supplier incumbents with BSNL. It would hardly enjoy relinquishing this position just three years after its breakthrough (autumn 2004). Management, nonetheless, seems intent on restoring profitability as soon as possible. It signals change in priorities.”
A spokeswoman for Nokia Siemens declined to comment on the negotiations, as “things are not yet finalized.”
The delay in sealing the deal is yet another setback for BSNL, which has been suffering from a capacity crunch thanks to the rapid growth of mobile subscribers in India. Back in December last year, the carrier was close to exhausting its network capacity, and its subscriber growth has virtually stalled in comparison with rival carriers. (See Court Delays Cost BSNL Millions.)
For example, the carrier added just over 500,000 subscribers to its congested network in September and 700,000 in October -- compared with Bharti Airtel Ltd. (Mumbai: BHARTIARTL)’s growth of more than 2 million users per month, and 1.5 million monthly growth at Vodafone India and Reliance Communications Ltd. (RCom) . The country’s former monopoly, state-run BSNL has now fallen to fourth place in market share. (See India Racks Up Mobile Subs.)
Writes Lindberg: “its reputation in the marketplace seems to suffer materially. We detect an immediate need to add capacity for 20m subscribers and, in the space of the next 36 [months], another 60m.”
With a three- or four-month lag between the signing of an agreement and the carrier beginning to receive the equipment, reports suggest BSNL may look to Ericsson to fill the rest of the order if Nokia Siemens does not accept the contract.
— Nicole Willing, Reporter, Light Reading