For the last several months, the Indian government had imposed restrictions on imported Chinese telecom equipment, due to security concerns. Indian security agencies have long worried that installing Chinese telecom equipment in Indian networks may lead to security breaches, asserting there may be a chance for foreign government monitoring of domestic communications via spyware.
However due to relentless pressure from telecom providers and the implementation of 3G and 3.5G networks, the government has lifted some of the restrictions temporarily. Telecom gear vendors have also met with Indian government officials recently to discuss network security. The recent deals among Tata Teleservices Ltd. , China's Huawei Technologies Co. Ltd. , Bharat Sanchar Nigam Ltd., (BSNL), and ZTE Corp. seem to indicate thawing of relations between India and China on the telecom equipment front.
Tata Teleservices has signed a deal with Huawei to implement a rapid rollout in five regions, enabling the Indian telecom company to offer customers multimedia voice and data services and other 3G services, which include the installation of thousands of Huawei’s LTE-ready radios. Growing commerce in telecom equipment between the regional rivals has prompted some observers to conclude that the de facto ban on Chinese telecom equipment has been lifted.
Meanwhile ZTE announced sales in India rose about 50 percent to $1.5 billion from the previous year. Both Huawei and ZTE have major R&D facilities in India, and they are expanding. Still, concerns persist about the future relationship between the two countries in the area of telecommunications.
The Indian government has insisted that all equipment vendors must transfer technology to Indian manufacturers within three years of selling equipment or services in India. It also requires inspection of manufacturing centers anywhere in the world. India's Department of Telecommunications has asked service providers to ensure that their networks are operated and maintained only by Indian engineers.
Earlier this year, Huawei executives said they had not received any "official guidance from the Indian government" about restrictions on telecommunications equipment made in China. "Nevertheless, we have read media reports and are deeply concerned and surprised to know about this development." The Chinese company added that its Indian operation "is currently evaluating and understanding the latest development and seeking clarifications from the concerned authorities."
According to market researcher Voice and Data, the Indian telecom equipment market is worth about $28.8 billion annually. Nokia is the market leader with sales of over $3 billion, followed by Huawei with nearly $2.5 billion. The Indian government is not only concerned about the equipment market, though. It is also planning to bring search and software companies like Google (Nasdaq: GOOG) under its security umbrella by asking the search giant to submit periodic reports. And it is pressing BlackBerry (Nasdaq: RIMM; Toronto: RIM) to set up an Indian datacenter so the government could monitor encrypted information on customers' BlackBerry handsets. The government also wants to ensure the security of Skype voice-over-IP services.
In order to boost manufacturing of indigenous equipment, the government may extend preferential status to "Made in India" products in its new telecom policy. Broader telecom policy will include measures appropriate to encourage domestic telecom manufacturing. Some aspects of this have been considered by the expert committee of secretaries, and preferential status for domestic manufacturers is one of them. The Department of Telecom meanwhile is waiting for recommendations from the Telecom Regulatory Authority of India on manufacturing and expects to receive these by April. The push for preferential treatment for "Made in India" products is part of the Government's agenda to reduce the widening trade deficit created by imports.
Citing the rising import bill of IT and telecom products, a task force has recommended that the government develop an ecosystem for boosting indigenous manufacturing. Estimates show that India's demand for electronics products, including telecom equipment, will be $400 billion by 2020. At the existing rate of growth, the domestic production of electronics hardware is likely to grow to only $104 billion by 2020, creating a supply-and-demand gap of $296 billion, which would have to be met through imports.