Thursday, September 02, 2010:
The furore over imported telecom equipment requiring security clearance has finally cooled down as the Department of Telecommunications (DoT), Government of India, lifted the eight-month ban. Although a temporary halt, the telecom industry experienced a major jolt in the past eight months. However, telecom equipment manufacturers/importers have agreed to abide by the tough new rules laid down by the government.
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New government norms
As per the latest norms for telecom companies sourcing equipment from foreign manufacturers, particularly Chinese companies, penalties of 100 per cent of the contract value will be imposed on mobile phone operators if any spyware is found in their imported equipment. International telecom equipment makers keen to do business in India will now have to deposit source codes and detailed designs of all products and services they sell in India, into an escrow account, in encrypted form. This can be accessed by security agencies and operators in case of an emergency. This means that TSPs will be prosecuted if found guilty and the vendors might even be blacklisted if found to have breached security norms.
Equipment orders pending
Since February 2010, the government had not cleared over 450 equipment orders worth close to $3 billion, placed with Chinese vendors. As of March 2010, India had 621.3 million telecom subscribers, up 44.6 per cent from the prior year, and this is expected to reach 700 million by 2012. At this crucial time, when India is all set to roll out 3G/BWA services by September this year, any further delay in giving the security clearance will have thwarted this accelerated growth.
Abiding by the latest security rules, operators are left with no option but to sign an undertaking of Rs 500 million (with an indemnification letter) assuring the government to self-certify their equipment. Though operators are not happy about the signing of the indemnification letter, this will at least help them in importing core equipment for their expansion and launch programmes.
Loss of revenue
Imports in these eight months had dropped to zero. Looking at the statistics, the industry is estimated to have lost business of more than Rs 100 billion. However, some see this as a short-term halt as it will reap benefits in the longer run. Opines Desi Valli, COO, Net 4, “Loss of revenue cannot be evaluated against the interests of national security; this does not even constitute a loss. It is just a short-term drop, as our first priority should be national security.”
Allegations denied
Industry analysts feel that the government should not have targeted only the Chinese vendors. Negating all allegations of spyware found in Chinese equipment, Suresh Vaidyanathan, head, PR, Huawei, says, “We are an international company and operate in 100 countries, including India. We have a proven track record and have 6,000 Indian employees working in 11 locations in India. We cannot afford to do this. The government is just strengthening its monitoring mechanism. There have to be checks and balances in any environment. Earlier, there was no procedure. Now they are bringing out a proper mandate.'' Huawei has been operating in India for the past 10 years and is embedded with all mainstream players.
“All these contracts have a lifecycle of two years. It's like a deferred cycle. The delay in clearing security equipment has been just eight months; we can always catch up,'' adds Vaidyanathan.
The lift on the ban comes as a big relief for many operators who have been banking on cheaper Chinese equipment to roll out 3G services. Moreover, operators who had pulled back on spending while waiting for the outcome of 3G auctions, have hope with this new mandate. “Even the government had to incur losses due to the loss in earnings from duties earned by importing these devices. The government completely understands the dynamic factors involved and also the losses that the operators had to bear, but there is no escaping the fact that if this network comes down, it will be a national problem,'' explains Rajan S Mathews, director general, Cellular Operators Association of India (COAI).
-- Richa Chakravarty
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