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Business – Bharti to outsource $1bn cable biz

Durba Ghosh & Joji Thomas Philip

NEW DELHI: Bharti Airtel has invited bids to outsource the management of its 1,20,00 km-plus of inter-city optic fibre cable network and hopes to
close the deal before the end of this fiscal, its chief executive officer Manoj Kohli told ET.

The deal is estimated to be worth up to $1 billion over a five-year period, industry sources familiar with the development said even as Mr Kohli refused to put a value to the contract size.

“We will form a JV and have a stake in the company to which we award this contract,” Mr Kohli added. ET first reported in August 2009 that Bharti would outsource the management of its inter-city fibre network, the physical cables on which voice and data signals travel between cities.

Bharti Airtel operates optical fibre cable network of over 100,000 route kilometers. Bharti Airtel is also set to renew its multi-billion network-outsourcing contracts with Ericsson and Nokia Siemens this year.

State-owned telco BSNL, which has the largest fibre network in the country, comprising about 600,000 km route is also set to invite bids from segment players in February to outsource the management of its network. According to executives with the PSU, the deal is would be closed in the second half of this fiscal. BSNL’s network outsourcing contract is expected to be worth over additional $1 billion over a five-year period.

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Bharti Airtel and BSNL contracts could well be the largest outsourcing deals in the country this calendar year.

In April 2009, Bharti Airtel entered into a joint venture with Franco-American telecom gear-maker Alcatel-Lucent to manage its landline and broadband business. Bharti is the minority partner in the 26:74 joint venture, and is paying the JV company about $500 million over a five-year period for managing its landline and broadband business in about 100 cities for the next five years.

With Alcatel-Lucent being a global leader in the fixedline and fibre optic space, its existing JV with Bharti should be the front-runner to bag the new contract.

But, Bharti has always looked at the best value proposition and may well consider bids from other players too. For instance, while Ericsson and NSN manage its mobile networks in India, the telco however offered the contract to Chinese gear maker Huawei for its Sri Lanka rollout.

ET also first reported in September 09 that BSNL plans to outsource its fibre optic cable operations. The PSU is now readying the tender for the same, but the contract could run into complications since it is set to face stiff resistance from its employee unions. This is because, the deal will have a direct impact on 30,000 jobs in BSNL as the firms that wins the deal cannot absorb all employees at the PSU who are currently responsible for the maintenance of its optic cables.

Currently, India is divided into 22 telecom circles. Sweden’s Ericsson manages Bharti’s networks in 15 circles while the rest is handled by Nokia Siemens. So far, Bharti has signed four major network outsourcing deals with Ericsson in the past five years since signing a $400-million deal in February 2004. The latest contract in mid-2007 was valued at $2 billion.

Bharti has also signed four network outsourcing deals with NSN beginning May 2004, when it signed a three-year, $275-million deal to build and manage networks across five circles. The last in the series of contracts was a $900-million deal signed in 2007 that went beyond mere network expansion. As part of the new deal, NSN was also given the task of enhancing the Indian telco’s national and international long-distance networks.

Industry executives tracking Bharti’s outsourcing moves say that the renewal of these contracts by Bharti this year opens up a $2 billion opportunity for the industry. Ericsson and NSN will not be guaranteed an automatic extension, but will have to compete with other potential bidders, they add.

Wile industry executives point out that incumbents — Ericsson and Nokia Siemens — remain favorites to bag these deals, Bharti’s decision to invite bids also presents an opportunity for other equipment vendors, such as Huawei, ZTE and Alcatel-Lucent, to bid for one of the largest networks management contracts globally. Significantly, Chinese equipment vendors will be participating for the first time.

Sistema Shyam Teleservices, one of the new entrants in the telecom space is also set to join the outsourcing bandwagon and the telco is currently in the process of identifying a partner to manage its upcoming networks across the country. Sistema — one of the largest public diversified corporations in Russia and the CIS — has a 74% stake in the JV with the Shyam Group that offers mobile services under the ‘MTS’ brand in India. Sistema Shyam is the only CDMA player, among the new crop of telecom operators

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January 27, 2010 - Posted by | Uncategorized |

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