Alcatel wins $1 billion deal with Reliance Comms

Telecom equipment maker Alcatel-Lucent SA (ALUA.PA) has won an eight-year contract valued at more than $1 billion to manage Reliance Communications Ltd's (RLCM.NS) mobile and fixed networks in the east and south of India.

The network outsourcing contract, intended to cut costs for India's No. 3 carrier, builds on a previous joint venture between Alcatel and Reliance Communications under which the gear maker managed the nationwide mobile network in a five-year $750 million deal.

About 4,000 people, about 15 percent of the Indian company's employees, will move to Alcatel-Lucent as part of the deal, Gurdeep Singh, Chief Executive of Reliance Communications' wireless business, said on Wednesday.

Alcatel-Lucent shares rose as much as 2 percent before paring back gains to be up 1.7 percent to 1.27 euros at 1050 GMT. Reliance Communications shares closed down 6 percent at 80.90 rupees amid a broader slump in telecom stocks that traders said was due to profit-booking after a substantial rise so far this month.

Most leading Indian telecommunication carriers have outsourced the management of their networks to firms including Ericsson (ERICb.ST), Nokia Siemens Networks and Chinese firms Huawei Technologies Co Ltd (002502.SZ) and ZTE Corp (000063.SZ) as they try to lower their costs.

Reliance Communications, controlled by billionaire Anil Ambani, had 134 million Indian mobile phone customers as of November, according to data from the sector regulator, ranking third in a market of nearly 900 million mobile users.

The carrier has lagged rivals Bharti Airtel (BRTI.NS), Vodafone Group Plc's (VOD.L) Indian unit and Idea Cellular (IDEA.NS) in operating performance. Saddled with a debt load of about $7 billion, Reliance is the most-leveraged Indian carrier.

The outsourcing contract with Alcatel also aims to cut costs and improve efficiencies, the companies said, although no specifics were given.

The deal is a boost for loss-making Alcatel-Lucent, which has been hit by competition from low-cost Chinese rivals and lower spending on network gear in 2012 by global telecoms operators.

Alcatel earns about 20 percent of its revenues from outsourcing contracts under which it manages big telcos' networks for them, but some of the contracts are not very profitable. The group has pledged to purge under-performing contracts in an ongoing 1.25 billion euros cost-cutting plan.

"Altogether, this is mild good news for Alcatel's services business, which is currently in attrition mode as it tries to weed out unprofitable contracts, but the company still needs to replace missing business with fresh and healthier backlog," said Alexander Peterc, analyst at Exane BNP Paribas.