Ericsson bags Airtel's mega service deal

Swedish telecom equipment maker Ericsson has clinched a multi-million dollar deal to supply, manage and maintain 60 million GSM lines for Bharti Airtel Ltd.

The equipment is to be supplied over three years and will include third-generation mobile service capability.

The deal, a top Bharti Airtel executive told Business Standard, was still "under discussion". Ericsson officials were also tightlipped about the deal, but sources said the order had been finalised and would set a new benchmark in per line valuation. According to some estimates, the deal valuation would be well over $2 billion.

A key reason for Ericsson bagging the deal is the company's 75 per cent market share in Bharti's installed mobile capacity that currently caters to an estimated 22 million mobile users.

In February 2004, Bharti had awarded a three-year contract, worth $ 400 million, to Ericsson to supply, manage and maintain GSM networks in several states. It has also executed similar deals with Nokia.

Instead of opting for the traditional method of ordering bulk infrastructure, Bharti Airtel has adopted a model which sees it book capacity with equipment providers with the option of rapidly upscaling capacity as and when required.

Another key component of this strategy is that the equipment vendor subsequently manages and maintains the network.

The Bharti order comes at a time when state-run Bharat Sanchar Nigam Ltd has received bids from five equipment vendors "" Nokia, Ericsson, Siemens, Motorola Inc and ZTE Corp "" to supply 45.5 million GSM lines, which will also have a third-generation component.

Another 18 million lines have already been ordered by the company from ITI Ltd, which, in turn, has a pact with France's Alcatel.

In terms of valuations, the last time BSNL ordered GSM equipment, it awarded the bid at around $70 per line, in a $500 million order to Nortel.

Valuations are expected to be only slightly lower this time, although BSNL now has an indigenisation clause in place which requires suppliers to have established some amount of manufacturing base in the country.