BSNL Cancels 93-mil. GSM Line Tender 

According to the Economic Times, the board of BSNL late last week decided to scrap its tender for 93 million GSM lines and invite fresh bids. The multi-million-dollar tender, which was first issued in early 2008, has been subject to numerous controversies ever since it was issued, preventing BSNL from placing orders with the shortlisted firms, Ericsson and Huawei as well as HCL Infosystems, which bagged the IT component of the deal. The decision of the BSNL board came after a committee led by Sam Pitroda—advisor to the prime minister on public information, infrastructure, and innovation—and including HDFC chairman Deepak Parekh plus telecom department secretary PJ Thomas as members, had endorsed the Central Vigilance Commission's (CVC's) report to scrap the tender. The prime minister's office had asked the committee to take a final call on the tender after evaluating the CVC report.

As reported by the Economic Times last month, the CVC (which was investigating "irregularities" in BSNL's tender for 93 million lines) had recommended that the state-owned operator scrap the tender and invite fresh bids. CVC launched a fresh probe into the tender in December 2009 as the anti-corruption body's guidelines forbid post-tender negotiations with successful bidders. The CVC in its report pointed out that the disqualification of Alcatel Lucent, Nokia Siemens Networks, and ZTE has resulted in the remaining vendors (Ericsson and Huawei) being assured of the deal, and BSNL could therefore not get the best price as there was no competition for the contract. Besides, the CVC report highlighted that the prices quoted by Huawei were significantly lower than those offered by Ericsson (see India: 2 February 2010: India Seeks Top-Level Government Intervention to Save BSNL GSM Tender and India: 30 December 2009: BSNL GSM Tender to Be Investigated by Indian Corruption Watchdog).

Outlook and Implications

• Further Delay in Network Expansion: The cancellation of the tender would result in further delays in BSNL's network expansion at a time when it is rapidly losing market share to private operators as it has run out of mobile network capacity in many regions of the country. Controversies around its network equipment tender have resulted in BSNL not being able to place any significant orders for equipment over the last three years, during which the country's mobile market recorded robust growth, thanks to the rapid expansion of private operators. BSNL, which was challenging Bharti Airtel for the top spot in the mobile space in 2006, has now been pushed to the fifth spot after Bharti Airtel, Reliance Communications, Vodafone Essar, and Idea Cellular. Tata Teleservices is also set to overtake BSNL in terms of mobile customer numbers in the next couple of months.
• Short-Listed Vendors Lose Out: Meanwhile, the latest development represents a significant blow to the two short-listed equipment vendors. Ericsson will be losing out on a US$2.5-billion-plus deal, while the contract size for Huawei was estimated at around US$1 billion. BSNL will also have to scrap the US$1-billion IT deal that was part of this contract. This will impact HCL Infosystems, which along with HP and Convergys, had been assured 50% of the IT deal. Other IT majors that may be affected include TCS, which may bag the remaining 50% of the contract and the Mahindra Satyam/Spanco combine which also stands a chance to win part of the deal. Nevertheless, the planned issue of a fresh tender will open opportunities for some equipment vendors, such as Alcatel-Lucent, Nokia Siemens Networks, and ZTE, that previously had been excluded from the deal.