The loss-making BSNL’s decision to scrap its order for 15 million GSM lines, which was part of a contract valued at Rs 5,000-6,000 crore, will have a long-term impact on the business strategies of major telecom equipment vendors in Indian telecom market.
Leading equipment vendors did not participate in the e-tender because the cash-crunched BSNL was ready to make payments after 2-3 years only.
Fuelling the entire issue which started in July, vendors were asked to participate in the tender on reverse auction basis. Reverse auction type of auction is where a buyer puts up a request for goods or a service. Then seller place bids for the amount they are willing to pay for the goods or service, and at the end of the auction, the seller with the lowest amount wins, who is called the lowest (L-1) bidder.
This could have put additional pressure on the margins of the equipment makers who are already reeling under pressure due to delay in roll outs and security related import issues. At present, telecom equipments are available to Indian operators at world’s lowest cost. Indian wireless players are leveraging the cost benefit citing lower ARPUs.
Delay in payment and arm twisting tactics are not new subjects for telecom equipment vendors in India. Vendors in India are under pressure not to miss big orders. Indian businesses conditions are totally different as compared with any other telecom market in the Asia Pacific region. We have seen operators renewing contracts in the middle of deployments,” said Nitin Bhat, partner – Asia Pacific, Frost & Sullivan.
Equipment makers such as Alcatel-Lucent, Ericsson, Cisco, Huawei, Nokia Siemens Networks and ZTE are giving special thrust on India because the total backhaul equipment market in India is expected to grow to $612 million in 2011 and $743 million in 2012 from $359 million in 2010, according to Ovum.
To survive in Indian market, companies like ZTE are arranging finance facilities to operator like Reliance Communications. The BSNL issue will force vendors to relook at their strategies. India is a big market for them as other markets are in the process of facing saturation.
This is the second time that BSNL has withdrawn the tender for roll out of GSM lines. in May, BSNL cancelled a tender for 5.5 million GSM lines worth Rs 2,000 crore. Last year, BSNL also cancelled a 93 million line tender worth Rs 35,000 crore amid controversies that the bidding process lacked competition and the capacity addition was too high for the company. As a result, at present BSNL is facing acute shortage of new lines to cater to demand.
The addition of 15 million GSM lines was significant for BSNL as the company started improving on the net additions of wireless users. BSNL’s net addition of mobile users in July 2011 was 21.3 percent compared with Reliance Communications (22.8 percent), Airtel (22.63 percent) and Vodafone (22.35 percent). The entire industry added 6.67 million wireless users in July 2011.
BSNL’s financial condition is deteriorating gradually. BSNL posted first-ever loss of Rs 2,197 crore in 2009-10. BSNL needs to cope with the pressure from private operators.
By Rashi Varshney
editor@telecomlead.com
