Vodafone Idea to Renegotiate Terms with Equipment Vendors, ZTE and Huawei to Take the Hit

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Newly merged entity, Vodafone Idea Limited (VIL) is renegotiating its terms with equipment partners, Nokia, Ericsson, Huawei and ZTE. Under the new pacts, Vodafone Idea Limited is going to form realigned commercial links with the equipment providers. This step has been taken by the telco to bring down the number of equipment partner per circle down to one, from the present number of three. As per analysts, this step is part of the site-rationalisation and network-integration exercise which comes as a benefit of combined synergies of the two companies. It’s worth noting that right now, the Finnish giant Nokia caters to equipment for Vodafone Idea Limited in 15 circles, while Ericsson does it in 14 circles. Chinese companies, Huawei and ZTE supply equipment to VIL in seven and three circles, respectively.


Vodafone Idea Limited Likely to Pivot away from Chinese Vendors

Going by the words of Rohan Dhamija, partner and head of India & Middle East at Analysys Mason, “VIL could opt for fewer network gear suppliers, especially since strategic sourcing is rapidly catching on as a concept 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.”

Merrill Lynch from Bank of America, also highlighted the same thing, saying that the telecom operator might realign its contract with the equipment providers to keep just a single company per circle on the task instead of 2-3 per circle. The executive also said that the telco might accomplish this in the coming one and one-and-a-half month.

As per the experts and people aware of the matter, under Vodafone Idea’s network rationalisation strategy, Chinese equipment companies like Huawei and ZTE will stand to make a loss. With Vodafone Idea Limited, moving fast to make use of its combined synergies and also keeping network rationalisation as its priority, the focus is bound to shift only to European vendors. The Chinese vendors like Huawei and ZTE are already facing a troubled situation in India and some other global markets as well.

Governments Against Chinese Vendors

In the US and Australia, the governments have moved against the Chinese manufacturers on the grounds of Cyber Snooping. While Australia has banned ZTE from its 5G rollout, US had already barred government use of equipment from both ZTE and Huawei. Again, as per the people aware of the matter, the step has been taken to keep the Chinese vendors away from the 5G rollouts.

Merrill Lynch, Bank of America said, “to avoid Chinese vendors, like some international telcos, may lead to higher capex outflow towards network equipment”. Merrill also noted that the removal of equipment of VIL’s overlapping 3G/4G network would lead to more savings. Further, he added that the extra equipment in the overlap of the 2G/3G network of the company could be used to cater to rural areas.

Vodafone Idea Cutting Down Costs

In a related development, Sanjay Malik, head of India Market at Nokia remarked, "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".

Deutsche Bank also said in its note which was spotted by ET, “Existing sites where Vodafone and Idea both have equipment will merge into a single tenancy leading to effective rental savings of Rs 22,000-25,000 per site.”

Analysts have remarked on VIL’s situations, saying that the company is going to see good savings on network opex because of lower rentals, site rationalisation and lower power costs.

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Chakri is a go-to guy for your next smartphone recommendation. Back in his engineering days, he used to play with smartphones by installing custom ROMs and that passion got him into the tech industry. He still goes nuts about a smartphone knocking his door for review. Currently managing everything at Telecom Talk, Chakri is trying to master PUBG Mobile in his free time.

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