BSNL to award $2-bn equipment deal to ITI

State-owned telecom operator BSNL will award a $2-billion equipment contract to Indian Telephone Industries (ITI), following security agencies’ opposition to giving the deal to build 25 million wireless lines in the west zone to Huawei, the lone shortlisted bidder for this area, said a company official.

BSNL has decided against issuing a new tender for the deal, which is part of the world’s largest telecom equipment tender for 93 million GSM lines worth about $10 billion, as this would delay the process further and will instead award it to state-owned ITI, said the executive requesting anonymity.

Global System for Mobile communications (GSM) is the dominant mobile-phone standard in India and elsewhere. The deal could be a boon for Franco-American networks company Alcatel-Lucent that has a manufacturing tie-up with ITI and has partnered in all GSM deals, BSNL has undertaken since 2005. ITI doesn’t have the know-how to execute GSM equipment deals on its own.

ET had first reported in May that BSNL was exploring this option. BSNL’s original tender was divided into four parts — 25 million lines each for north, west and south zones, and 18 million lines for the east. It has decided to award the contracts for north and east zones to Sweden’s Ericsson and selected Huawei for west and south zones.

Now, as first reported by ET, the security panel, consisting of representatives from the defence ministry, Intelligence Bureau, RAW and other intelligence agencies, has approved Huawei handling the work in the four southern states on grounds that they do not share sensitive borders with Pakistan, China or Bangladesh.

BSNL could not award the west zone contract to Ericsson, as tender conditions stipulated that one company would not be awarded more than two zones. At present, the company is negotiating the financial aspects of the deals with Ericsson and Huawei. ITI will have to match the prices offered by these multinationals in other zones, said the BSNL executive.

He said the telco is concerned about ITI’s ability to deliver, considering its two plants — in Mankapur and Rae Bareli — have a joint annual capacity of producing only about 10 million lines.

Alcatel-Lucent may step in here, but according to the executive, BSNL will not enter into negotiations with the multinationals, as it does not want any further legal complications over the contract.  The entire deal was delayed because Nokia Siemens Networks (NSN) dragged the tender process into the courts after the company was disqualified from the 93 million lines tender on technical grounds.

But past month, both the Andhra Pradesh High Court and an ‘integrity panel’ set up with the permission of the country’s top anti-corruption body, the Central Vigilance Commission, justified the state-run company’s decision to disqualify NSN from the tender on technical grounds.  Interestingly, the BSNL Committee examining the Rs 35,000-crore tender had also rejected Alcatel-Lucent’s technical bid.

The new contract, meanwhile, will make ITI more attractive to potential suitors. The communications ministry has already invited expressions of interests (EoIs) from global equipment makers and equity investors to buyout or pick stakes in three of the six manufacturing plants run by the telecom hardware firm.

ET had reported on April 4 that Alcatel-Lucent is interested in buying a part of ITI, provided the government enforces the ‘offset clause’ for all telecom tenders issued by BSNL and MTNL, the two main clients of ITI, who contribute over 80% to its revenue.

Under the offset policy, 30% of all telecom contracts (for hardware and equipment) awarded by BSNL and MTNL has to be sourced and manufactured by ITI.