Ericsson turns down $1 billion extra business from BSNL
By Our Corporate Bureau | 11 Dec 2007
Mumbai: Mobile phone supplier Ericsson has turned down extra business from Bharat Sanchar Nigam Ltd (BSNL) worth nearly $1 billion amidst worries of falling margins and waning investor confidence.
Ericsson had warned of a profit fall in October and followed it up with a presentation in November. The two events had the combined effect of nearly halving Ericsson's share price.
Ericsson will still handle 60 per cent of BSNL's order for about 23 million lines, supplying 13.12 million lines for around $90 per line in a deal worth $1.3 billion.
The remaining 40 per cent was awarded to the second-lowest bidder, Nokia Siemens Networks, but the company rejected the offer.
"We were offered and we said no," a website for Swedish daily Dagens Industri quoted Ericsson spokeswoman Jana Mancova as saying.
Mancova said the company wanted to focus on ensuring high quality for customers and said the decision was not related to the offer terms.
Perhaps, Ericsson may not want to jeopardise its ability to supply other Indian customers, as it has taken on a huge amount of Indian business lately, say analysts.
Ericsson's troubles has mainly been due to an erosion in margins as the company has been gaining a greater share of its business from new networks, which are less lucrative, and fewer than expected orders for high-margin upgrades and expansions.
In contrast, Nokia Siemens has been consistently keeping margins high despite the supply explosion on the mobile phone market.
BSNL said in November that Nokia Siemens had bid $171 a line and under its rules it could offer the remaining 40 per cent to the second-lowest bidder if it was willing to match the lowest bidder's price.
Ericsson had agreed to supply 60 per cent of the 22.5 million cellular line project at about $90 per line.
Nokia had expressed concern at the revised tender conditions. The tender size was reduced by half from the initially planned project of 45 million lines after the communication ministry raised doubts over the process followed by BSNL. The ministry also insisted that the price per line would have to be less than $100.