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The renewed security concerns come as India’s telecom industry is on the verge of another expansion. The restrictions on access to cutting-edge yet cheap technology could blunt Indian telecom companies’ competitive edge, say industry sources.
The request was conveyed to telecom players in a closed-door meeting, in which players were asked to “self regulate” the use of Chinese equipment in 21 of the 29 Indian states. Notably, Chinese telecom gear can still be used in New Delhi and Karnataka, considered India’s Silicon Valley.
Presently the instruction from the telecom licensing authority is just a request. But the government is reportedly formulating guidelines to secure the country’s telecom system by restricting the use of equipment originating from “unfriendly” countries like China, Pakistan and Egypt.
Some industry players are peeved, while admitting concerns are valid. “Even if the DoT’s concerns may not be unfounded, it is an unfair demand on its part to tell telecom operators not to use Chinese equipment,” said a senior official from one of India’s largest privately owned local mobile companies, requesting anonymity.
"Chinese equipment is the most inexpensive equipment available today and it is also cutting edge. By restricting its use, India would be depriving the Indian telecom service providers from accessing technology cheap. If India bans Chinese equipment other vendors will raise their prices, which is our fear,” he said.
The telecom players’ plight is understandable. India is the fastest-growing telecom market; call rates are among the cheapest and competition is cutthroat, so the ability to set up low-cost networks is a game changer. Besides, the country is on the verge of rolling out third generation, or 3G, mobile telephony.
“The restrictions that DoT proposes to impose therefore couldn’t be more unfortunate,” said one industry source.
For the Department of Telecommunications and the country’s intelligence agencies, however, the industry’s financial concerns are hardly a priority. More important is the national security concern.
Recently the Intelligence Bureau urged the DoT’s Telecom Enforcement Resource and Monitoring cells to conduct surprise checks on the domestic set-ups of Huawei and ZTE Corp., two major Chinese telecom equipment makers.
In mid-September, Bharat Sanchar Nigam Limited, the state-owned telecom company and the largest fixed-line local area network operator in the country, removed Huawei from its short list for a US$2 billion equipment contract to set up 25 million wireless lines in western India. Reportedly, the company was forced to switch to the local Indian Telephone Industries because of security agencies’ opposition to Huawei.
“The whole issue is that of traceability,” said Pawan Desai, head of information security management services for the Mahindra Special Services Group, a security risk consulting firm.
“Chinese telecom equipment is known for its spying capabilities. Typically, Chinese makers do not reveal the full specifications and the built-in software, known as algorithms, to the government. So we hardly know what sort of hidden instructions this equipment comes with. This also makes it difficult to apply any kind of check-back mechanism,” said Desai.
Besides, critics say, some of the equipment is not manufactured in compliance with various electrical and telecommunications equipment safety guidelines and may prove to be a health hazard.
However, Chinese companies, including Huawei and ZTE, deny such allegations. Both argue that they are prominent global players and all their equipment meets international industry and safety norms. In retaliation, they allege that the propaganda against Chinese equipment and their alleged security flaws may be hype by Western equipment companies that are unable to compete with them.
Chinese companies command over 20 percent of the Indian market and are growing fast. Almost all new telecom operators – as well as top players like Reliance Communications, Idea Cellular and Tata Teleservices – use Chinese equipment, which costs one-fifth of what established global companies charge.
Still, telecom security remains a sensitive issue in most countries and paranoia about Chinese equipment is global.
In December 2008, Australia launched a security check on the operations of its frontrunner telecom company, Singtel Optus, in the belief that the company had roped in Huawei to roll out Australia’s proposed national broadband network. Singtel Optus admitted it had connections with Huawei.
In early 2008, Huawei came under the scrutiny of a U.S. congressional investigation following suspicions over its links to China’s military and intelligence apparatus.
Also in 2008, a study by Rand Corporation, a U.S. think tank, noted that Huawei maintains deep ties with the Chinese military, which is not only an important customer but also Huawei's research and development partner.
The Heritage Foundation, a conservative U.S. think tank, also claimed in an earlier study that the Shenzen-based company’s founder, Ren Zhengfe, was a former officer in the People's Liberation Army, which has access to Huawei's technology and operations.
In India, the Foreign Investment Promotion Board raised the first hurdle for Chinese telecom companies as early as 2000 by shooting down Huawei’s investment plans in the country. It later relented and allowed Huawei as well as ZTE in.
But in 2005, India cancelled a US$31 million contract awarded to Huawei by state-owned BSNL. That year India also disqualified ZTE from bidding for an order floated by Mahanagar Telephone Nigam Limited, another Indian state-owned telecom company.
“Fundamentally, by banning Chinese telecom equipment India is also seeking to make certain political points,” said Alka Acharya, professor of Chinese studies at Jawaharlal Nehru University in New Delhi. “It indicates that India is designating the telecom sector as a core vital sector in the larger scheme of Indian interests. Countries which India believes does not serve the best of India’s interests would therefore be barred.”
Experts say India’s biggest problem is that, unlike other developed countries, its security machinery is not advanced enough to monitor rogue technology equipment. “For instance, India does not have the capability to track Internet calls nor can it track telephone calls through grey (under cover) telecom networks that use Chinese equipment,” said Desai.
India should beef up its security systems on a war footing rather than making unreasonable demands on private telecom operators, argued the telecom industry source.
According to Acharya, that would be too time consuming. “India is evolving its own security system and developing the technology that can address its security concerns,” she said. “But until that happens, the country and its telecom operators will have to bear some amount of inconvenience and pay for it if need be.”
