Nortel talks with BSNL could cut deal size

OTTAWA (Reuters) - Nortel Networks Corp said on Friday it is in talks with Indian mobile phone company Bharat Sanchar Nigam Ltd that could reduce the size of a money-losing contract, initially estimated at US$500 million.

In its quarterly filing with US regulators on Thursday, the telecoms equipment supplier said the negotiations could also result in additional project losses.

"The outcome of the negotiations could result in a reduction in the initial revenue estimate of US$500 million," the filing said.

The company added the outcome could also mean "additional project losses in the fourth quarter of 2005 and into 2006".

Nortel said the initial US$500 million estimate includes an option to increase, by 50 percent, the amount of gear purchased under the first phase of the deal.

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

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

"It was originally a US$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 theatres 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."

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

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 in its filing.

Brampton, Ontario-based Nortel struck the deal to supply equipment for a wireless network in August 2004. At the time, it expected to recognise revenue of about US$500 million through 2005 and the first half of 2006.