Nokia gets five-year service contract from India

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Mobile telephone manufacturer Nokia has signed a five-year contract for maintenance of mobile telephone networks in India.
      The deal, announced on Wednesday, includes the planning, assembly, operation, and maintenance of networks run by the mobile operator Hutchison Essar in nine circles in India. At the same time, about 600 Hutchison Essar employees will join Nokia's staff.
     
The companies did not disclose the value of the new contract, but Nokia says that it is one of its largest service contracts.
      Hutchison Essar has 13 million customers in India. Nine of the company's 13 circles operate on Nokia networks.
      Analysts estimated that the deal could be worth more than EUR 80 million a year, or a total of about EUR 400 million over the five years of its duration. The news boosted Nokia's share price on the Helsinki Stock Exchange by 1.6 percent to EUR 15.1.
     
Nokia Networks, a division which originally focused on supplying Nokia equipment to service providers, now operates 36 mobile phone networks in 28 countries.
      Mobile operators see outsourcing agreements as a way to cut costs in a highly competitive business environment. For network manufacturers, providing maintenance service for networks that they have set up themselves is a convenient way to boost sales figures.
      Service agreements have been seen as a golden egg that could solve the financial problems experienced by Nokia Networks.
      According to Bosco Novák, head of the company’s service business unit, the proportion of services in the turnover of Nokia Networks grew last year from 25 percent to slightly over the target figure of 30 percent.
      "This contract shows that we were right when we decided to concentrate more than before on service agreements. In the future, their proportion will grow even further", Novák said on Wednesday.
      He would not give any specific goals on Wednesday, which was the day before Nokia published its results for last year (see linked story).
      "Operators are constantly looking at what operations they want to keep themselves, and what they should outsource. If the trend continues, our service side will grow at the same rate that it has so far."
     
In addition to Asia, the market for service contracts is growing in South America. Novák says that there is also potential in Europe and the United States. He notes that the services involved in the growing markets of the east and south differ from those in Europe.
      "The market has started to open, and new contracts are emerging. However, we must keep in mind that services and goods deliveries go hand in hand. Neither side operates alone."
      Nokia Networks is the world’s second-largest manufacturer of mobile phone networks, right after Sweden's Ericsson. Networks operations comprise 19 percent of Nokia's turnover.
      Hutchison Essar is a joint venture of the Hong Kong-based Hutchison Whampoa, which is one of the world's largest mobile phone operators, and Essar Teleholding. It is a fairly small factor in the growing Indian market, but it is aiming at powerful growth.
      Nokia's arch-rival Ericsson recently closed a 7-year service deal in Britain with the mobile operator 3 UK, which is owned by Hutchison. Estimates on the value of that deal are as high as EUR 3.7 billion.

More on this subject:
 Update: Nokia result brings no great surprises

Links:
  Nokia press release: Nokia selected for 5-year Managed Services deal with Hutchison Essar Limited

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