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Western Wireless Companies Face Another Roadblock

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On the road toward business in India, China Development Bank builds another bump.

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Wireless infrastructure companies had, for the most part, a tough year in 2009. That is, of course, unless your name was Huawei or ZTE. Last year, the only big spending program came from the launch of 3G systems in China by China Mobile (CHL), China Telecom (CHA), and China Unicom (CHU). At each carrier, the bulk of build-out went to the home team.

The wireless infrastructure is the network of radios that sit on those beautiful cell towers made to look like trees and other strange objects.

Contrary to expectations, 2010 may well turn out to be a tough one as well for the likes of Nokia Siemens Networks (NOK) (SI), Alcatel-Lucent (ALU), Ericsson (ERIC), and others in the wireless infrastructure market. For more than a year, they've all had their eyes on the prize in India and each time their balloons were popped. This time, however, the disappointment may be more than just another delay.

As of December 2009, India was home to 525 million wireless subscribers, according to the Telecommunications Regulatory Authority of India (TRAI). That's an increase of 51% from the prior year and nearly all of them subsist on 2G systems. TRAI has been planning to roll out of 3G systems for what seems like an eternity. However, the spectrum to be used has been occupied by the Indian military and the in-fighting common to all bureaucracies has been a major obstacle.

The process started as far back as 2007 but, to the best of my knowledge, the first planned auction of the spectrum was set for January 2009. No surprise, it was delayed. The most recent auction target was expected to be March 2010 and this time it really looked like they might pull it off. However, it has apparently been pulled from the calendar as well. It seems you can't auction something that isn't physically in your possession. Most now think the spectrum auction will not take place until late this year. I'll believe that when I see it.

So, if you're in the wireless infrastructure business, what looked like it might be a big opportunity to boost the top-line in 2010 just went poof once again. But this time around there's a twist that may make winning business even more difficult.

The government anticipates that the spectrum auction should bring in about $8 billion from the winners. In order to facilitate the process for carriers, the Ministry of Finance has eased its rules on external commercial borrowings. Given the size of payments required, successful carriers will now be allowed to borrow the necessary money overseas.

Why could this be detrimental to western wireless equipment carriers? Three words: China Development Bank (CDB). It provided financing to an Indian carrier after that carrier had selected Huawei's equipment in 2009. You can be certain that, given CDB's deep pockets, it will have no problem providing spectrum financing. But the chances are pretty good that the financing will come with other strings attached as well.

Now, Nokia Siemens Networks, Alcatel, Ericsson et al will have yet another hurdle to overcome winning contracts for their hardware and services. Tough times just got tougher.
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