Raising the red scare in India's
telecom sector By Indrajit Basu
KOLKATA - Paranoia about Chinese telecom
companies investing in India has dealt a blow to
the expansion plans of two Chinese telecom
equipment makers.
And with these
developments, India has accommodated US
intelligence suspicions that some of the Chinese
companies are indulging in espionage activities
globally.
India has always been wary of
the "invasion" of Chinese telecom companies, but
the country's concerns went into overdrive
recently when, at the behest of the security
agencies, India's Foreign Investment Promotion
Board (FIPB) and the Department
of
Telecom stalled on granting permission to Huawei
Technologies of China to set up a $60 million
telecom equipment-manufacturing unit. Its
application has been pending since March.
This was the second time in four years
that Indian security agencies had moved to stymie
Huawei's plan, which was first mooted in 2001.
Earlier, the FIPB shot down Huawei's intention of
setting up a $40 million research and development
center next to the proposed manufacturing unit.
The Huawei facility, if approved, will
focus on NGNs (next generation networks), fixed
wireless terminals, some parts for 3G (third
generation) equipment, as well as design processes
for Huawei's products. The facility would also
meet the bidding criteria for Indian telecom
public sector units (state enterprises) , which by
law have to procure equipment from vendors with
local manufacturing units.
And last week,
the state-owned Bharat Sanchar Nigam Ltd (BSNL),
which is the country's largest telecom company,
canceled a $31.16 million contract involving
Huawei.
Huawei and its two Indian
partners, Himachal Futuristic Communications Ltd
and state-owned Semiconductor Complex Ltd, failed,
according to BSNL, to supply equipment for more
than 105,000 code division multiple access (CDMA)
lines. This is after the Chinese firm won a bid
last year for supplying equipment.
BSNL
also hinted that it was considering banning Huawei
from participating in any tender it issues this
year, and may even permanently ban Huawei from
bidding in all its future projects.
This
assumes significance in view of the fact that
Huawei's bid was the most competitive (read
lowest) that BSNL received for the CDMA tender;
reports suggest that Huawei undercut its rivals on
price by a huge margin to win the deal.
Huawei is not the only Chinese telecom
company facing problems in India. China's
second-largest telecom equipment maker, Zhongxing
Telecom Co Ltd (ZTE), also says that it has been
waiting for government clearance for two years to
start manufacturing in India, but issues raised by
Indian security agencies "are posing as
hindrances" to its India plans.
Security concerns Huawei and ZTE
are two glaring instances of the severe doubts
India has about allowing the entry of Chinese
telecom companies into the country. But, according
to the Ministry of External Affairs (MEA), the
objection regarding Huawei has reached serious
proportions "since its operations in India have
come to the adverse notice of India's security
agencies, which have expressed reservations
regarding the company's links with the Chinese
intelligence and military establishments",
according to an official of the ministry.
The MEA also says that Huawei has misused
the country's visa regulations, and suspects that
it has indulged in intelligence-gathering
activities for China. India's leading intelligence
agencies, the Research and Analysis Wing (RAW) and
the Intelligence Bureau, have been blunt.
According to them, "Huawei has been responsible
for sweeping and debugging operations in the
Chinese Embassy," and as a result allowing a
Chinese telecom company to participate in Indian
telecom projects stands the risk of "exposing
strategic telecom networks to the Chinese".
These agencies have also expressed their
"reservations regarding the company's links with
the Chinese military and intelligence
establishment, their clandestine operations in
Iraq and Taliban-ruled Afghanistan, and their
close ties with the Pakistan Army".
Huawei
does not only face resistance in India. The going
has been tough for the $8 billion revenue telecom
giant in the US as well, where it is perceived to
be the most global of all Chinese companies, yet
the least transparent.
According to a
report in the Economist magazine, suspicion of
Huawei in the US primarily stems from the fact
that its founder, Ren Zhengfei, was a former
People's Liberation Army officer. Moreover, "No
one knows who runs Huawei; its shares are probably
owned by local state telecoms customers," says the
Economist, adding that its unclear ownership thus
makes it a "mere tool of an expansionist policy
propagated by Beijing's leadership".
The
Economist added that the US Federal Bureau of
Investigation also suspected that visiting Chinese
students and businessmen indulged in "economic
espionage". In fact, it was the US intelligence
agency that, in 2001, first tipped off the Indian
government about Huawei's murky ownership and
suspected military ties.
Nevertheless,
even as the authorities are working overtime to
address their security concerns, the moot question
is how justified is India in keeping Chinese
telecom companies such as Huawei at bay?
According to R R N Prasad, a former member
of the Telecom Regulatory Authority of India, as a
matter of policy, "India has never permitted a
foreign company to manage, operate and maintain
the country's telecom network, and hence
Huawei-supplied equipment poses little threat."
He added that, in fact, most of the
country's mobile networks, which are operated by
private players, are entirely built on imported
equipment from global multinationals. "In all
these imports, the issue of security has never
been raised as the installation and operations
have always been entrusted to Indian engineers,"
Prasad said.
"The imported equipment
generally comes in knocked-down condition and is
assembled on site and is extensively tested by
Indian engineers. Only after elaborate acceptance
testing is the equipment taken over by a team of
maintenance engineers, who operate the system by
an elaborate set of man-machine commands with
sensitive commands being protected by passwords.
The issue of security becomes critical only if the
company supplying the equipment is also asked to
install and operate it."
Some analysts
believe that India might be shooting itself in the
foot by being over-sensitive about Huawei. They
point out that it is one of the leading telecom
equipment suppliers in the world - it supplies
products and solutions to more than 300 operators
globally - and that excluding the highly
cost-competitive Chinese supplier would increase
prices for local companies.
For its part,
Huawei is undaunted and is unwilling to give up on
its India plans just yet. Although the company has
refrained from reacting officially to the BSNL
cancelation and all the allegations that have been
made against it, reports quoting Huawei sources
said the firm believes "the delay in approvals is
normal in many foreign investment approvals and
the company is confident of eventually getting a
positive response from the Indian government".
Indrajit Basu is a Kolkata-based
equity-analyst-turned-journalist with more than 12
years of experience in business/finance and
technology journalism. Besides writing for Asia
Times Online, he also writes for US-based
publications, as well as IT companies.
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