Indian state-run operator Bharat Sanchar Nigam Ltd. (BSNL) has finally awarded a reduced GSM equipment contract to Ericsson AB (Nasdaq: ERIC - message board), after everything from RFP delays to a court case to objections from a government minister derailed its $4.5 billion network expansion plans. (See Ericsson Lands BSNL Deal.)

    The $1.3billion deal is half the size of the $2.7 billion contract BSNL had been preparing to award the Swedish vendor in May when India's new IT and Communications minister, Andimuthu Raja, stepped in to question the cost of the expansion project. (See BSNL Expansion Delayed Yet Again and BSNL to Award $4.5B Mobile Contracts.)

    That followed on going delays in the bidding process as the operator struggled to pull together such a massive equipment tender, and Motorola Inc. (NYSE: MOT - message board) took to the courts to object to being disqualified from the technical evaluation. (See BSNL Delays Wireless Deals and Moto Stalls BSNL's Wireless Tender.)

    After negotiations with the vendor and striking employees concerned about the delay in procuring equipment, BSNL agreed to reduce the size of the contracts to get the expansion back on track. The carrier's network has become so congested that it's all but stopped issuing new connections and has fallen to fourth place in mobile market share.

    Ericsson will begin to deliver the equipment next month, with the first phase of the project set to be completed by October 2008.

    Although Rajahad asked the carrier to remove the 3G component of the order for a later date, the new agreement will see Ericsson supplying WCDMA/HSPA gear as well as GSM equipment.

    According to the Press Trust of India news agency, Ericsson will supply 13 million GSM lines, while Nokia Siemens Networks , which was to receive a smaller deal under the original 45.5 million line tender, will be given an order for more than 9 million GSM lines.

    In a research note issued in July, Dresdner Kleinwort analyst Per Lindberg said that "the reduction, from our perspective, is of symbolic nature only. BSNL will need to add ~20-25m lines through the remainder of this decade to cope with demand and meet its market share objective -- or permit Bharti et al to grow faster."

    Reports in the Indian press suggest BSNL is already looking to issue a new RFP (request for proposal) within eight or nine months.

    In a note issued Friday, Lindberg pointed out that in India, "pent-up demand looms large." BSNL's deal with Ericsson will match the vendor's revenues from Bharti Airtel Ltd. (Mumbai: BHARTIARTL - message board), which awarded it a $2 billion, two-year network expansion agreement in July. (See Ericsson Scores $2B at Bharti.)

    "The order, encompassing the supply of GSM and WCDMA radio access, transmission and a combined core network as well as associated services, signifies material market share gains. Ericsson is on course to regaining the #1 slot with BSNL," Lindberg writes, adding: "We maintain that India alone will provide the company with ~5% blended revenue expansion [in] 2008."

    Indian operators added a record 8.06 million new mobile subscribers in July and they are all in the midst of massive network expansion projects. Vodafone Group plc (NYSE: VOD - message board) is expected to award $2 billion in equipment contracts to up to three vendors for the former Hutchison Essar , which it acquired in February. The carrier has overtaken BSNL for the third market share spot, behind Bharti and Reliance Communications Ltd. -- which has also recently ordered new network equipment. (See Reliance Shifts Expansion Strategy.)