India Blocks Foreign Telecom Gear
Specifically, the carriers have decided that telecom equipment suppliers bidding on their business will have to either make their equipment in India or hire an Indian contractor to do it for them.
According to a release from the Government of India's Press Information Bureau, the decision was made last week "so as to ensure the quality, timeliness of delivery, [and] after sales service" of equipment. Shri Dayanidhi Maran, the minister for communications and IT, said the department is requesting that the country's private operators do the same.
The issue of foreign vendors supplying the Indian market has come to the fore with various reports that the government there is uneasy about Chinese vendor Huawei's expansion plans in the country.
Huawei has repeatedly faced security clearance hurdles in trying to do business in India; the latest instance came in March, when the vendor applied for a license that would allow it to bid on tenders issued by BSNL and MTNL. The government has stalled the application, citing concerns over exposing its telecom networks to a Chinese company, and is resisting Huawei's plans to invest $100 million in its operations there.
The Times of India has quoted the defense ministry as stating "there are general security concerns regarding activities of Chinese companies. Safeguards are practically difficult to implement in highly technical areas."
The government's intelligence agency, the Research and Analysis Wing (RAW) has accused Huawei of all kinds of things. "This company has been responsible for sweeping and debugging operations in the Chinese embassy. In view of China's focus on cyber warfare there is a risk of exposing our strategic telecom network to the Chinese," the agency writes.
Huawei officials hadn't responded to requests for comment as this article was published. It's worth noting that Huawei's equipment is already installed in BSNL's broadband network and the vendor has won contracts with MTNL, Reliance Infocomm Ltd., and Tata Teleservices Ltd.
Gururaj "Desh" Deshpande, founder of U.S.-based Sycamore Networks Inc. and India-based Tejas Networks India Ltd., notes that concerns over national security are hardly restricted to India. "It's part of the reason I think they’ve had very little penetration in the U.S.," he says.
The Indian government is mostly concerned about vendors from anywhere dumping cheap kit in the market and leaving the operators without long-term product support and maintenance, reckons Sanjay Nayak, CEO and managing director of Tejas, an optical transport vendor based in Bangalore. That's why the operators' decision focused on quality and after-sales support.
"People are skeptical," he says. "If anybody is offering their products at such low prices, one gets suspicious in terms of what kind of long-term support are they going to provide."
That reflects a growing fear of Chinese vendors, like Huawei and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), which are undercutting rival networking vendors on price and increasingly picking up business abroad. (See ZTE Makes International Headway and Huawei H1 Sales Hit $4.1B.)
BT Group plc (NYSE: BT; London: BTA), however, has attempted to allay such fears as it has repeatedly and openly stood by its pick of Huawei to supply some gear for its 21CN. (See Paul Reynolds, CEO, BT Wholesale.)
Huawei has said it wants to expand in India because it's been seeing interest from service providers, but most contracts stipulate the bidder should have some form of operations in the country. While the government mulls over what to do, the Cabinet Secretary has temporarily allowed Huawei to bid on contracts, as long as it partners with an Indian supplier.
Earlier this year, the vendor announced plans to invest $60 million to set up a manufacturing subsidiary in Bangalore, in addition to spending $40 million on expanding Huawei India, its software and R&D center. That would put it in compliance with the rules, but evidently isn't enough to allay concerns.
Nayak says carriers are "trying to make a decision" about whether to allow these companies into the market and buy their products. They're torn between wanting to buy cheap equipment and wondering what the catch is. "It’s very hard to articulate," he says.
Indian officials are not alone in questioning why Huawei's prices are so low, and many in the industry wonder how involved the Chinese government is with the company. Still, Huawei has repeatedly stated that it has no ties to the Chinese military or intelligence agencies.
The Indian telecom market has emerged as a battleground for international vendors as the government has loosened regulatory control over foreign investment. Although it's primarily known as an outsourcing destination, the domestic Indian market is booming -- particularly for wireless and data services. Even teledensity is improving: Following a series of changes by the government to open up the market, the number of telecom connections has climbed from about 0.8 per 100 persons a decade ago to 9 per 100 at the end of last year.
And there's little home-grown competition. "India was not used to having Indian manufacturers," Deshpande says. When domestic technology companies did begin to emerge, "it was difficult to convince people" that Indian companies could deliver. So while Indian suppliers are emerging, the majority of the country's networks were built using gear from the likes of (Nasdaq: ERICY).
The government recognizes that if India is to meet its goal of reaching 250 million phone users by 2007, operators will need to build out their networks with the help of foreign suppliers and investors. At the same time, they want the local talent and the regional economies to benefit. (See India Appeals to Foreign Carriers.)
"I’m pleased with the way they are responding," says Deshpande. "The rules are clear and explicit... The general concern is just making the market fair."
— Nicole Willing, Reporter, Light Reading