This tender delay has connected BSNL to a hard capacity crunch

After taking charge, Telecom Minister A Raja claimed the price received in the tender was high

The tender drama is finally over. Sixteen months after inviting bids, government-owned Bharat Sanchar Nigam Ltd (BSNL) has finally issued the advanced purchase order (APO) to Ericsson for procuring equipment and establishing a GSM network. Even though it has drastically reduced both the price (by 12 per cent) and the quantity (50 per cent) in the tender, observers feel that Ericsson will accept the APO.

However, the delay in placing the orders for equipment will have a long term-impact on the company. It has lost the opportunity to expand its subscriber base. While private players have been adding subscribers in millions every month, BSNL has been rejecting subscribers at many places for want of equipment. Its network is over-stretched and in some states like Chhattisgarh, BSNL is working at a capacity of over 150 per cent.

In the absence of number portability, it is very difficult for an operator to attract the subscribers of competitor. A subscriber who has once gone to a competitor is a permanent loss for the others. In such a scenario, BSNL’s opportunity loss is huge and cannot be compensated.

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The situation was so bad for BSNL that it registered a decline in new subscriber additions. In May, the company added only 2,38,553 new telephone connections while market leader Airtel added 18,51,000 new telephone connections. Its share in new GSM subscriber addition declined to 4.5 per cent in May, 2007, from a high of 31.5 per cent in December, 2005. It added 10.1 lakh new subscribers in December 2005, marking a decline of over 76 per cent. Airtel registered a growth of over 100 per cent in new subscriber addition during the same period. Airtel added over 19.6 lakh new subscribers in May, compared to 9.7 lakh in December, 2005. BSNL procures equipment through a tendering system. Vendors who want to supply equipment to the company have to participate in the tender which has two parts — technical and financial. Only those vendors who qualify in the technical bids are allowed to participate in the financial bids.

BSNL generally places orders with the two lowest bidders. The lowest bidder gets the major chunk of the order (60 per cent in this case) while the second lowest gets the rest of the quantity (40 per cent). However, the second lowest bidder has to match the price quoted by the lowest bidder.

The tender was always marred by controversy. The first controversy erupted about a year ago when one of the bidders, Motorola, was disqualified on technical grounds. Motorola was one of the five companies that participated in the tender, for which the invitation notice was issued in March 2006.

Ericsson, Nokia, Siemens (which later merged with Nokia) and ZTE were the other companies that participated in the tender. BSNL rejected Motorola’s bids on technical grounds and its financial bids were not opened. Motorola went to court and the process of procurement was delayed for eight months. Motorola claimed that the system of technical evaluation was not transparent but later it withdrew case from court on its own.

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When A Raja became minister, he said that the price received in the BSNL tender was very high compared to the price received in a similar MTNL tender. The lowest bidder in the BSNL tender quoted a price of $107 per line while the lowest bidder in the MTNL quoted a price of $90 per line. However, he overlooked the fact that the specifications in the BSNL tender were very different from those of the MTNL tender and if a comparison is made at the component level, it becomes clear that the price quoted in the BSNL tender was actually 10 per cent lower than that in the MTNL tender. In fact, the price of $107 was significantly lower than the price at which BSNL placed orders (under the 50 per cent clause of the early tender) with the same companies a few months back.

BSNL may have saved a few dollars per line after 16 months of drama. However, what the political interference in equipment procurement has caused is a permanent loss to the company.

What Next?

• If Ericsson rejects BSNL’s order

In such a scenario, BSNL will approach the second lowest bidder Nokia-Siemens and ask it to match the lowest price. If Nokia-Siemens is not able to match the price, then BSNL has two options — to increase the price or cancelthis tender and invite fresh bids.

• If Ericsson accepts BSNL’s order

In such a case, BSNL’s requirement for one and a half years will be met. However, it will soonhave to issue another tender so that fresh capacity is available when the existing one is filled.