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3G/HSPA

India Leery of Foreigners, ZTE

Chinese equipment vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) is finding mixed fortunes in India's telecom market.

The company has bagged a three-year deal with Tata Indicom to provide CDMA2000 equipment across the country as the carrier builds out its mobile network beyond India's urban centers.

As part of an 5.9 billion rupee (US$128.31 million) expansion plan, Tata aims to connect more than 9 million rural subscribers in the next two years with wireless voice and data services. In rural areas of India, where 70 percent of the continent's population resides, fewer than 10 out of every 100 people have landline phones.

The agreement follows a deal the two signed last year to supply 1 million CDMA handsets. ZTE also does business with Tata's Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL) international subsidiary.

ZTE counts Bharat Sanchar Nigam Ltd. (BSNL) and HFCL Infotel Ltd. among its other Indian customers and could be set to cash in on BSNL's network expansion as well, as one of the vendors bidding on its monster wireless equipment contracts. (See Huawei Beats 2005 Sales Target.)

But while Indian carriers have embraced Chinese vendors, the country's government remains wary. Much like its compatriot, Huawei Technologies Co. Ltd. , ZTE -- which already has a manufacturing presence in India -- is facing resistance from the government there as it seeks to expand its local subsidiary. (See India Blocks Foreign Telecom Gear and ZTE Moves Into India.)

Focused on international growth, ZTE aims to derive 40 percent of its revenues from overseas sales this year. (See ZTE Makes International Headway)

The vendor has applied to the Foreign Investment Promotion Board (FIPB) for permission to inject more equity capital into its Indian operations and branch out into the wholesale equipment market, offering after-sales support services. But following objections from intelligence agencies, the Indian government has reportedly asked the FIPB to put the application on hold while it investigates the company.

The Economic Times reports that, while security clearance is granted automatically with the type of application ZTE filed, the government has become squeamish about providing foreign companies with access to India's telecom networks, access they would need to provide after-sales care. Huawei's application still remains on hold after similar objections were raised last year.

— Nicole Willing, Reporter, Light Reading

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