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Vodafone Idea May Go With Fewer Network Partners

Vodafone Idea Ltd (VIL) is reworking commercial pacts with Nokia, Ericsson, Huawei and ZTE to reduce the number of equipment partners down to just one per circle from as many as three now, analysts said. The move is part of a complex site-rationalisation and network-integration exercise to derive synergy benefits from the sector’s largest merger.

“VIL could opt for fewer network gear suppliers, especially since strategic sourcing is rapidly catching on as aconcept in a post-merger operations integration scenario, where the merged telecom entity, typically, increases the volume of business to fewer network vendors to obtain better services and bigger discounts,” said Rohan Dhamija, partner and head of India & Middle East at Analysys Mason.

Bank of America-Merrill Lynch said “its on-ground channel checks” suggested the telecom company could “realign its commercial agreements with equipment suppliers over the next 1-1.5 months to move to a one vendor per telecom circle” scenario from two-three suppliers at present.

Finland’s Nokia currently provides networks equipment to the combined Vodafone-Idea Cellular entity in 15 circles, followed by Sweden’s Ericsson in 14. China’s Huawei and ZTE supply equipment to VIL in seven and three circles, respectively.

Vodafone India and Idea have merged recently to create India’s largest telco, and are moving swiftly to start generating benefits from operational synergies targeted at around $10 billion over the next few years, with network rationalisation playing a major part in the projected savings.

Post-networks integration, VIL “may prefer the European vendors over the Chinese ones”, a person aware of the matter told ET. Such a move will be a big blow to both Huawei and ZTE, which 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. BankAm-Merrill Lynch, however, said any potential move by VIL “to avoid Chinese vendors, like some international telcos, may lead to higher capex outflow towards network equipment”. VIL, Ericsson, Huawei and ZTE did not respond to ET’s queries until press time Monday.

A Nokia India spokesman said the vendor “has been a long-standing partner of both Vodafone and Idea across technologies, and would continue to support it through this period of consolidation to ensure seamless network integration while making it future-ready”. – Gadgets Now

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