India's telecoms scrutiny a boost to European firms?

Reported ban by Indian authorities on Chinese mobile network equipment may lead to near-term revenue losses for Chinese players but benefit European vendors, say analysts.
Written by Vivian Yeo, Contributor

Should the India government follow through on its threat to ban local telcos from buying mobile network equipment made in China, Chinese vendors may suffer significant near-term revenue losses, while European providers could stand to gain, according to analysts.

The Indian administration ordered mobile operators in the country not to import any network equipment manufactured by Chinese suppliers such as Huawei and ZTE, according to a report from the Associated Press on Apr. 30. Going forward, Indian telcos were also required to obtain security clearance from the Ministry of Home Affairs by submitting details of equipment used in projects.

The announcement was prompted by national security concerns that spyware or malware may be embedded in Chinese telecoms gear, allowing Chinese intelligence agencies access to telecoms networks in India. Earlier last month, researchers uncovered a spy network with links to China, which stole sensitive information from several parties including the Indian government.

Nupur Singh Andley, associate research manager for connectivity at Springboard Research, said a ban on Chinese equipment vendors will likely provide their European counterparts such as Ericsson and Nokia-Siemens Networks (NSN) "an advantage" in the Indian market, which is a growing focus market for all vendors.

This would be a setback for the likes of Huawei and ZTE, especially since the pair had "gained strong grounds" in India over the past few years. They had emerged as strong contenders to the already-established European payers via a combination of price competitiveness and market aggressiveness, Singh Andley noted in an e-mail.

Bryan Wang, Springboard's research director for connectivity and country manager for China, added that both Huawei and ZTE have been expecting "great growth potential in India" over the next couple of years. They have also made significant investment in the country in terms of research and development (R&D), manufacturing and managed services capability.

"The announcement certainly holds back their ambitions to have multibillion-dollar projects from the coming 3G investment in the next one to two years," he pointed out in an e-mail. "If the new regulation becomes real, it will at least have an impact of US$1 billion in revenue for Huawei in 2010, representing 4 percent of [its] global sales."

Ben Cavender, senior analyst at China Market Research, told ZDNet Asia in an e-mail that much of Huawei and ZTE's rapid growth has been derived from expansion in developing markets in Asia and the Middle East. While India is an "extremely important" market, Chinese vendors, especially Huawei, have diversified by tapping into developed markets.

In addition, it is not the first time Chinese mobile network equipment providers have run into trouble in India, he noted. "Last year, India leveled anti-dumping claims against both Huawei and ZTE and put tariffs in place," he said.

Cavender added that both companies in the long run "will probably be very successful" in India, but noted that it would be difficult to assess the short-term impact of the Indian government's actions.

Ban or no ban?
For now, at least one Chinese vendor--Huawei--has denied any official ban by the Indian government. In an e-mail to ZDNet Asia, a spokesperson said the company was "not aware of any ban" by the Indian government.

The Business Standard reported last week that the Ministry of Commerce and Industry in India did not agree with the ban on Chinese equipment and is expected to issue a clarification soon on the matter.

Quoting an official from India's Ministry of Home Affairs, which raised concerns over China-made gear, the report indicated that "a final call" would be made by the Prime Minister's Office. "There is no ban but there are certainly security issues raised by the intelligence agencies, which cannot be ignored," the official said.

A separate Wall Street Journal report on Sunday said the Indian government has given Huawei and ZTE one month to fully disclose details of their ownership.

In response to the new development, the Huawei spokesperson said: "We are not able to comment on any specific measures taken or contemplated. Huawei executives speak with the Indian government regularly and will continue to communicate the strong measures that Huawei has put in place to ensure the deployment of high-quality and secure networks for our customers in India and around the world."

A ZTE spokesperson declined to touch on the latest developments, but said in an e-mail that the company "is making further confirmation and closely following up [on] the progress" of the case.

"ZTE Corp. has always strictly adhered to Indian law, government policies and related regulations," she said. "ZTE R&D centers and manufacturing bases have been established in India over the past few years, with products and project delivery capabilities highly acknowledged by Indian mainstream operators. ZTE sincerely expects to create greater value for the operators and the Indian telecoms industry in the future."

European vendors Alcatel-Lucent and Ericsson declined comment for the story.

In an e-mail response, a spokesperson from NSN did not indicate if sales or interest in its network equipment have grown since the Indian government's announcement. However, he said: "Wherever we do business, we ensure that our customers and the local authorities can be confident that our equipment and services comply with all applicable regulations."

Whether or not a formal ban is in place, India's fast-growing mobile segment is likely to churn on with opportunities for vendors to tap, according to Springboard's Singh Andley.

"The stable growth in the country’s mobile subscriber base over the past decade, soaring mobile teledensity and the anticipated rollout of 3G and WiMax services next year have instigated international vendors to gear up for the surge in demand for telecoms equipment," he said.

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