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BSNL has decided to cancel its 93 million GSM line tender, released about two years ago. The decision follows the intervention of Sam Pitroda, who had been appointed by the Prime Minister's Office to review BSNL's financial performance and suggest ways to improve it. He recommended scrapping of the tender.

It was a tough decision for BSNL, given its urgent need for capacity expansion. The company had run out of mobile capacity in most circles nearly 18 months ago. However, it had little choice, considering the red-tapism and controversies that have been surrounding the tender.

Problems arose soon after BSNL disqualified three of the five bidders –­ Nokia Siemens Networks (NSN), Alcatel-Lucent and ZTE –­ on technical grounds. NSN challenged its disqualification in court. Further, security agencies debarred BSNL from buying equipment from Chinese vendors, including Huawei. Subsequently, BSNL started negotiations with Ericsson for lower prices, but DoT stated that the PSU might not get the best price since there was no competitive bidding.

The Central Vigilance Commission (CVC) also added to BSNL's troubles by recommending cancellation of the tender on grounds of irregularities. The Pitrodaled committee, which includes Deepak Parekh, chairman, HDFC, and P.J. Thomas, secretary, Telecom Department, took the final call, endorsing the CVC's report.

BSNL is now planning to issue a fresh tender of 40-50 million GSM lines and aims to complete the procurement process within 60 days of issuing the tender. It also plans to exclude several controversial clauses that had plagued its earlier tenders. It is likely to do away with the standard clause in all PSU tenders, which states that the contract must be divided between the two lowest bidders –­ L1 and L2 –­ and the entire deal be awarded to a single firm.

The fresh issue of the tender may also follow a managed services model, as recommended by the Pitrodaled committee.

The committee has also directed BSNL to change its method of procurement, from outright purchase of equipment to a lease arrangement. The vendor selected for the supply of equipment should also be responsible for installation, maintenance, operations and expansion. By doing so, BSNL will be able to reduce its capital expenditure, besides addressing the issue of shortage of trained engineers who are qualified to deal with telecom technologies.

The committee has further recommended that BSNL should prepare the network's operational, quality and commercial requirements for the bid document within 20 days. To ensure transparency, openness and fairness, no changes will be permitted after the bids have been received.

Meanwhile, the move is likely to affect the shortlisted vendors, Ericsson and Huawei. Ericsson was selected to deploy solutions for the north and east zones while Huawei was shortlisted for the south zone. No vendor was shortlisted for the west zone. The cancellation of the tender will result in Ericsson losing out on a $2.5 billion-plus assured deal, while Huawei will lose around $1 billion.

BSNL will also have to scrap the $1 billion IT deal as part of this contract. This will impact Tata Consultancy Services, which alone was likely to bag 50 per cent of the deal. Other IT majors facing losses include HCL Infosystems, HP, Convergys and the Mahindra Satyam/Spanco combine, which were assured of the remaining 50 per cent of the IT deal, valued at about Rs 20 billion.

The Pitroda-led committee's decision may seem harsh and is likely to impact BSNL's current capacity expansion plans, but it will help the company put an end to the controversies surrounding the project.