Huawei breaking down barriers to India's GSM goldrush
Published: 18 May, 2009
India's 3G and WiMAX auctions - at least beyond state-owned BSNL and MTNL - may be delayed, but there is still a huge flurry of equipment awards going on in 2G, as existing cellcos race to meet the exploding demand for mobile connections, and as the wave of new entrants, licensed last year, start to build their networks.
One of these new operators, Unitech Wireless (in which Telenor is taking a majority stake), has awarded five-year GSM/EDGE contracts worth $150m apiece to Alcatel-Lucent and Huawei, while another newcomer, SSTL (Sistema Shyam) has given a seven-year infrastructure deal to ZTE, as it rushes to complete a nationwide 2G roll-out by the third quarter of next year.
The Indian operator goldrush comes at a heavy cost to the vendors though - the squeeze on margins from the ultra-competitive pricing in this most budget sensitive of markets. This has particularly troubled Nokia Siemens, which has loudly criticized Ericsson in the past couple of years for undercutting the market and making it hard to compete. NSN says it refuses to engage in loss leading deals and has walked away from various Indian tenders that it believes would be unprofitable - though like its most price aggressive rivals, Ericsson, Huawei and ZTE, it is moving towards lower margins on equipment, balanced by a heavier component of software and services, which carry better profits.
In late 2007, NSN walked away from a 40% share of a $2bn GSM expansion deal with BSNL, when the state-owned operator pressurized it to match the prices offered by Ericsson (which had the other 60%). NSN rejected the order for 9m GSM lines because the price was only $80-$90 per line, compared to the $170-$177 specified in the original deal, but Ericsson's scale enabled it to accept the new rate. The remainder was retendered, and NSN has continued to work with BSNL on various projects, but has now run into confusion again with the massive carrier. NSN told Dow Jones that it still hoped to gain a portion of a $6bn GSM equipment contract - the single largest deal in the world - despite reports that BSNL had awarded it to Ericsson and Huawei.
Indian media reports said NSN had been disqualified on "technical grounds" (which can cover a wide variety of things in the complex Indian tendering process, including pricing). But NSN said it had put in an offer and that BSNL had not yet made a decision.
The huge GSM contract is for four zones though NSN had only bid for the north zone, vying with Ericsson and ZTE. ZTE was the only supplier to bid for all zones, while Huawei tendered for south, east and west; Ericsson for north and east; Nortel for south; and Alcatel-Lucent for west. The huge numbers of lines and short timescales involved in such deals often prevent vendors from bidding for nationwide contracts, Ericsson conceded. The entire BSNL tender covers 93m GSM lines and will almost certainly include add-on business from 3G roll-out. BSNL has early access to 3G spectrum, ahead of the delayed auctions.
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