Employees at the Siemens Information and Communication Group have reason to be smug, if tired, after the final signing of the network tender deal with third cellular operator Cell C.
Siemens never encountered a hint of inappropriate practices, despite a storm of allegations flying between bidders through the three years.
Pete da Silva, COO, Siemens Information and Communication Group
Worth a total of $221 million over 18 months, which could be worth between R1 billion and R2 billion depending on currency fluctuations, the contract includes the construction of a cellular network down to the base stations as well as operational support and related services.
Siemens is also a major contractor to Vodacom, although it does not handle base-station site acquisition for Vodacom as it will for Cell C.
Pete da Silva, COO of the Siemens Information and Communication Group, says fulfilling the initial 18-month contract won`t be easy, as a project of that size would normally be completed over three years, but that the benefit to Siemens will not end at that time.
"We expect this relationship to be extended beyond the first phase," he says.
Roughly 50% of the contract value will go into equipment and sophisticated software bought offshore, with little or no money flowing to other local companies. But Da Silva says a wide range of companies will handle the remaining 50%, including "some very big guys and some very small guys". More than 50 black empowerment sub-contractors were listed at the last count.
Woo everybody
So how does one win a contract of that magnitude? The answer seems to be spending lots of money and hedging your bets.
Da Silva says Siemens had the historic presence in SA, the people and the equipment available to win the contract, but that may not have been the deciding factor in a hotly contested race.
"I think it was the relationship-building with the [licence] bidders before and after the fact which did it," he says.
Siemens geared up for the tender three years ago, long before the invitation to apply (ITA) for the licence had been published, and had determined that a third operator would be viable.
"By the time the ITA came out we had already done a business plan," says Da Silva. "We fielded a team six months before the ITA was issued."
The pre-award team, consisting of around 40 people at any one time, approached all the bidders on an equal bidder basis, down to the smallest and most unlikely to win. Da Silva says it was considered too risky to focus attention on any bidder or partner with a specific consortium.
By the time Cell C was announced as the intended preferred bidder and the wooing of the other consortia ended, Siemens was pretty confident it had done a good job, despite fierce competition from Lucent and Ericsson even after Nokia dropped out early. "We would have been on the shortlist of any of the top three groups," says Da Silva.
Playing such a broad field comes at a cost -- between R80 million and R120 million by Da Silva`s guestimate. Yet that substantial sum is well below 10% of the total contract value, and Siemens is expected to maintain a profit margin that will show a significant return on that investment, although the company will not reveal its expectations.
The arms-length relationships with all bidders had another advantage. Da Silva says Siemens never encountered a hint of inappropriate practices, despite a storm of allegations flying between bidders through the three years.
Going after the SNO
With Cell C signed and sealed, if not yet delivered, Siemens is already looking at the next big contract. And despite varying estimations, there won`t be anything much bigger than the second network operator (SNO) licence.
The SNO or Telkom competitor is to have a head-start on infrastructure with the inclusion of Esi-Tel and Transtel in the consortium, but a national fixed-line backbone and the probable duplication of the local loop means a lot of cable needs to be laid.
Siemens has already fielded a pre-acquisition team to start work on possible SNO bidders. "We are going after the SNO in the same way as we did Cell C," says Da Silva.
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