Chinese cos eat into European share in Vodafone Idea Ltd equipment contracts

Vodafone Idea Ltd (VIL) has finalised new network equipment supply contracts, with Chinese equipment makers Huawei and ZTE emerging major gainers at the expense of European rivals Nokia and Ericsson as India's largest telco focuses on costs in a bid to realise Rs 14,000 crore worth of annual synergies two years ahead of time.

After a tight battle for the overall contract likely worth $1.3-1.4 billion (Rs 9,230-9,940 crore), Finland’s Nokia and Sweden’s Ericsson will collectively meet roughly 65% of Vodafone Idea’s network gear requirements, while the two Chinese vendors will handle the remaining 35%, people familiar with the matter said. Previously, the Europeans met some 80% of the cumulative telecom equipment needs of Vodafone India and Idea Cellular before their merger, which was completed on August 31.

The newly-created telco is racing against time to merge its dual network to not just save on costs but also to kick off deepening and expansion of its 4G network and increase capacity as it lags erstwhile market leader Bharti Airtel and latest entrant Reliance Jio Infocomm, and has consequently been losing subscribers. Vodafone Idea have also said it plans to refarm 2G and 3G spectrum and deploy for 4G.


“Vodafone Idea will shortly place purchase orders (POs) with Nokia, Ericsson, Huawei and ZTE for 4G network gear, aggregating roughly $1.3-1.4 billion as nearly 30% of existing equipment will be reused in smaller towns to optimise costs and improve capex efficiency,” one of the people quoted above said.

Another person said VIL has stepped up gear purchases from Huawei and ZTE as both vendors offered more attractive prices and flexibility in payment terms over two to three year-spans unlike Ericsson and Nokia, which had quoted higher rates and sought payments at the point of deployment itself.

Nokia and Ericsson though still bagged more circles—nine and eight respectively, as compared to Huawei’s seven and ZTE’s five, all of which were shared with another vendor. Nokia currently provides network equipment to the combined entity in 15 circles, followed by Ericsson in 14 circles. Huawei and ZTE supply equipment to VIL in seven and three circles, respectively.

In a major win for Chinese companies, Huawei bagged the latest contracts for both Delhi and Chennai metros, while Ericsson didn’t get a single metro circle. Nokia got Mumbai and Kolkata, and shared the Tamil Nadu circle with Huawei, though it lost out on Chennai.

Nokia and Ericsson declined comment while Vodafone Idea, Huawei and ZTE didn’t respond to ET’s emailed queries.

Balesh Sharma, chief executive officer of Vodafone Idea, told analysts on Wednesday that the operator had completed its vendor selections for circles and zones. The company, in a presentation, also said it had brought forward by two years to FY21 the annual Rs 14,000-crore runrate for costs and capex synergies.

The latest contracts come as a breather for both Huawei and ZTE who have been facing severe revenue challenges in India due to rapid consolidation in the telecom service provider market, besides facing headwinds in some global markets due to security concerns.

Both these vendors have got more circles than previously estimated, due to the mobile phone operator’s focus on keeping costs in check, another person said. “While initially, Vodafone Idea was veering towards the European vendors, Idea’s previous experiences with the Chinese players, especially in terms of running a tight ship, tilted the scales,” the person said.

The company is facing intense financial pressure. It posted a loss of Rs 4,974 crore and an earnings before interest, taxes, depreciation and amortisation margin of 8.1% for the quarter ended September, raising concerns about its ability to service debt that has ballooned to more than Rs 1.15 lakh crore.

Rohan Dhamija, partner and head of India & Middle East at Analysys Mason, said Vodafone Idea could have thought about giving more circles to fewer vendors to get bigger volume discounts, which would have helped them in financially turbulent times. “However, the decision could be driven by the complexity of the two merged networks, hence the need for enrolling specific vendors in specific circles,” he said.