India's Reliance and Alcatel-Lucent in $1 bn deal

Indian mobile phone company Reliance Communications (RCom) will award a $1-billion, eight-year contract to US-French telecom equipment supplier Alcatel-Lucent, the companies said Wednesday.

The contract is to deliver voice and data communication services to RCom's networks in southern and eastern India, they said in a statement.

"Our existing joint venture is getting a new shape, which we are expanding into a multi-year contract," Alcatel-Lucent's Asia-Pacific president Rajeev Singh-Molares told reporters in Mumbai.

The two groups termed it the first contract for managing complete service provision in India and said the deal was one of the biggest of its type in the world.

Alcatel-Lucent plans to enhance RCom's operations and combine previously independent wireless and wireline teams into a single network management organisation, which would help the Indian firm focus on growing its business.

The new contract covers management of mobile, fixed-line and corporate networks, the firms said.

Mumbai-based RCom, part of the Anil Ambani-controlled Reliance Group, is India's third-largest mobile phone company with about 134 million subscribers.

The deal -- aimed at cutting costs for Reliance -- comes at a time when local telecom firms have been slowing down investments, amid intense competition and regulatory policy uncertainty in India, one of the world's largest telecom markets.

Rcom's rivals like Bharti Airtel and the local arm of Vodafone have already outsourced their network-management operations to non-Indian partners to help them focus on their core services, analysts said.

Nearly 4,000 RCom employees -- 15 percent of its workforce -- will move to Alcatel as part of the project by 2020, said Reliance's chief executive Gurdeep Singh.

Ankita Somani, an analyst with Mumbai's Angel Broking, said the deal would be positive for the loss-making Alcatel-Lucent, which is facing stiff competition from cheap Chinese rivals.

"The deal size is eye-catching," she said, adding that it would not affect Reliance's balance sheet in a major way as it was a long-term contract.

RCom shares ended down 5.93 percent at 80.95 rupees at the Bombay Stock Exchange after the announcement, hit by valuation concerns.

"India is one of the most important markets in the world. We have seen challenges in the market but believe that they are coming to an end," Singh-Molares said.

"We believe in India as a market and as a country and our deal is a manifestation of that."