Siemens wins US$54mn Colombia Movil contract

www.latintrade.com 03/19/2003 - Source: Business News Americas

(BNamericas.com) - German telecoms vendor Siemens (NYSE: SI) beat out Ericsson, Alcatel and Nortel to win a US$54mn contract to provide the GSM network equipment for startup PCS operator Colombia Movil, local daily Portafolio reported. Siemens will deploy a network to cover all of Colombia's departmental capitals and main urban areas, in addition to the country's major thoroughfares.

The US$54mn bid was "very aggressive" given such coverage objectives, Pyramid Research analyst Carlos Rodriguez told BNamericas. Rodriguez noted that the contract represents about half of what Colombia Movil had budgeted for capex this year.

Siemens probably bid near or below the real cost of deploying the network, with the idea to recoup the investment with future contracts in coming years, he said. However, Rodriguez said other contracts would not be just around the corner. The current deployment would yield a network good for at least three years, unless growth far exceeds what is expected, he said.

Yankee Group analyst Wally Swain told BNamericas that Siemens' bid might not be undervalued, depending on what is included in the contract. "A switch is around US$5mn. Cell sites are US$150,000-250,000. This could be as little as one switch and 200 cell sites which should give enough coverage," he said.

Swain also noted that the contract does not cover transmission between sites, most of which they will rent from their parents, which are Colombia's two largest fixed line operators. "It is not clear because we have no details, but it is likely [the contract] doesn't cover the physical tower work or electrical work," he added.

Rodriguez saw the bid as part of a wider market expansion strategy in Latin America. "Siemens knew that this is one of the last opportunities it has to enter a large Latin American mobile market," he said, adding that the company is also playing hard to gain the contract with Ecuador's new PCS concessionaire, Andinatel.

Siemens will also look to benefit its handset division from the Colombia Movil contract, Swain said. The German vendor can now leverage the contract to push into the local handset market as well, he said.

Rodriguez agreed, noting that Siemens does not have any handset presence in the region except through its GSM network agreements with Telecom Italia Mobile (TIM) in Brazil and Venezuela.

According to the paper, Siemens would have the infrastructure in place by mid-year. Earlier estimates by Colombia Movil executives had the network up and running by October of this year.

However, Swain said such a time frame would be very aggressive. The existing cellular carriers take an average two months per cell site to find sites, negotiate contracts and obtain permission from the authorities to install, before installation can begin, he said.

It should be easier to get approval for PCS sites from Colombia's civil aviation board and the municipal environmental agencies because their towers are lower, and in many cases antennas can be flush-mounted on the side of a building. However, Swain said it would still be a considerable logistical challenge to mount a sufficiently extensive network for an adequate service launch.

A more realistic objective is to have a network running before the Christmas holiday season kicks in, Swain said, noting that the Colombian market has traditionally seen a big end-year push, with as much as 40-50% of sales occurring in the second half of the fourth quarter. Colombia Movil must have a stable network before then, or it will miss this critical sales period, he said.

Colombia Movil, a joint venture between Colombia's two largest fixed line operators, Bogota-based ETB and Medellin-based EPM, won its PCS license in January.

The PCS operator has indicated it will invest US$550mn over the next five years for GSM network buildout, and ETB has already approached the capital markets to finance its part of the cost.