Nortel to negotiate with BSNL

Ottawa:Nortel Networks Corp. on Friday announced that it is in talks with Bharat Sanchar Nigam Ltd.

This attempt to negotiate could reduce the size of a money-losing contract, initially estimated at $500 million.

Earlier, Ontario-based Nortel had struck the deal to supply equipment to BSNL in August 2004.

At the time, it was expecting to recognise revenue of about $500 million through 2005 and the first half of 2006.

However, Nortel said that the initial $500 million estimate included an option to increase, by 50 per cent, the amount of gear purchased under the first phase of the deal.

To date, Nortel has booked losses of approximately $266 million and recognised revenue of about $228 million from the contract, a spokeswoman for the company said.

Of that loss, it recorded a $71 million hit in its third-quarter results, announced on Wednesday.

Losses from the contract are primarily driven by an increase in project implementation costs and pricing pressures in India's highly competitive market, Nortel said.

"It was originally a $500 million contract and we're recognizing those revenues progressively," Chief Financial Officer Peter Currie told analysts in a conference call on Wednesday.

"In terms of future business, our intent is to build the business profitably, perspectively. So any future business in India, or other theaters for that matter, we're looking at very carefully to ensure it generates positive returns for Nortel shareholders. And so you'll hear more from us on that in the future," Currie said.

Some analysts have criticised deals like this because suppliers are selling their technology at a loss to enter the fast-growth Indian wireless market.