Oct 10, 2012

Why U.S. Probe Won’t Hurt Huawei in India

The India operations of Huawei Technologies Co. and ZTE Corp. are unlikely to be affected by concerns voiced by U.S. lawmakers that telecommunications equipment made by Chinese companies pose a security threat, analysts say.

A report released earlier this week by the U.S. Congress, warned that equipment produced by these companies could be used for spying and that they may have violated local laws. It also recommended that the U.S. government and private companies to avoid using such equipment. Huawei fired back, denying these allegations.

This is unlikely to happen in India, where demand for cheap telecommunications equipment is likely to trump security concerns, experts say.

“India’s high-growth telecom sector needs equipment and devices for network expansion, and operators are running low on resources,” said Faisal Kawoosa, a telecom analyst at Delhi-based Cyber Media Research Ltd.

“So, opting for cost-effective equipment is a necessity and, among the options available, vendors such as Huawei and ZTE have a clear edge over their Western competitors in terms of pricing,” Mr. Kawoosa said. Huawei and ZTE are among the cheapest suppliers of network equipment to India.

Equipment from Chinese companies costs about a third of that sold by global rivals such as Alcatel-Lucent ALU.FR -0.57% L.M. Ericsson Telephone Co.ERIC-B.SK +0.06% and Nokia Siemens Networks. Huawei and ZTE also offer loans to telecom companies to buy or lease their equipment in India, which has the world’s second-largest number of mobile phone subscribers after China.

GirishTrivedi, director at India-based telecom industry adviser Monk Consulting Pvt. however points out that the developments in the U.S. could add to negative perceptions against Chinese telecom equipment makers. This may also hurt the firms’ ability to bid for public tenders in India.

New Delhi raised similar security concerns in 2009 and 2010, when it stopped state-owned telecom operator Bharat Sanchar Nigam Ltd. from procuring gear from Huawei and ZTE, citing worries that they could be embedded with spy gear.

At the time, privately-run telecom operators complained the government rejected their proposals to import equipment from Huawei and ZTE and that this was restricting their network expansion plans.

Security concerns gradually eased and, in August 2010, the Indian government allowed wireless operators Reliance Communications Ltd.532712.BY +0.96% and Tata Teleservices Ltd. to import telecom equipment from Huawei and ZTE.

The government’s green light came on the condition that a laboratory had to first certify the equipment as spyware-free.

All phone companies are required to keep all call and data records for a year and to allow India’s telecom department access to all such details. The companies also have to inform the department of any updates or changes to equipment within 15 days.

If any security breaches are detected, the telecom company involved can be fined up to 500 million rupees ($9.5 million).

“Huawei has a proven and unblemished track record as a stakeholder and partner in India. We have fully complied with all legal and regulatory norms in the past 12 years of our presence,” said Suresh Vaidyanathan, a spokesman for the Indian unit of Huawei. Officials at ZTE weren’t immediately available for comment.

In the year that ended March 31, 2011, a total of $6.7-billion worth of Chinese telecom equipment — including cordless phones, mobile phones and cellular base stations — was imported into India. The import figures for the year through March 2012 weren’t immediately available. Huawei sold equipment worth $1.2 billion in India in the 2011 calendar year.

Officials at India’s ministry of telecommunications and home ministry declined to comment.


Source: Wall Street Journal (http://blogs.wsj.com/indiarealtime/2012/10/10/why-u-s-probe-wont-hurt-huawei-zte-in-india/?mg=blogs-wsj&url=http%253A%252F%252Fblogs.wsj.com%252Findiarealtime%252F2012%252F10%252F10%252Fwhy-u-s-probe-wont-hurt-huawei

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