New Delhi: India’s top security agency has raised new concerns on Chinese gear makers Huawei Technologies Co. Ltd and ZTE Corp. providing critical telecom equipment to private mobile phone companies and for important government-led projects, but recommended that blocking procurements from these vendors would not be practical.

The National Security Council Secretariat (NSCS), which looks into the country’s political, economic, energy and strategic security concerns has suggested that India adopt a “two track approach" of encouraging domestic telecom equipment manufacturing and strengthening its testing and certification facilities to counter the threat posed by Chinese vendors.

NSCS has pointed out that Australia blocked Huawei from participating in the $38 billion National Broadband Network project and the US prevented the Chinese telecom company from bidding for a contract to construct its national wireless network, but said it does not want India to take a similar approach.

“Since blocking of procurements from foreign companies may not be a practical proposition given the current state of development of the telecom industry in India, we need to quickly strengthen our systems for assurance, testing and certification before any component is integrated into the national telecom network. In this regard, the model in the United Kingdom could be suited for its applicability in India," the security agency said as part of its recommendations.

The UK has a testing centre that is owned and managed by Huawei, but the Chinese vendor cannot employ people in this facility without clearance from the UK government. Huawei also has no say in the testing activities of the centre, which is totally autonomous and independent of the company. UK government teams work with the centre on cyber security and R&D, and Huawei provides complete and unfettered access to its product codes.

NSCS’s recommendations against blocking Chinese vendors and following the UK model, if endorsed by the government, may help address a long-pending concern of security agencies in the country. “Any policy that clarifies India’s position regarding Chinese vendors will be a boost to the industry and help telcos undertake long-term planning for their networks," said an executive with a leading mobile phone company, who asked not to be identified.

In 2011, India stopped telecom network imports from China, but pressure from mobile phone companies forced the government to change course. The following year, imports from China resumed after the government put in place a new set of security rules for foreign vendors. The issue came up again in early 2012 when in a separate report, the security wing of the telecom department (DoT) said Chinese vendors had “embedded strategic interest, which companies like Cisco and Nokia did not have" and added that Huawei and ZTE did not have “any qualms in circumventing international norms" in their efforts to win contracts. “For example, Huawei’s cost of equipment is cheaper than others, because it is believed, they even steal IPs. However, Huawei does not agree with this," the report added.

Last year, India decided to take another look at Huawei and ZTE’s operations after a US Congress panel said in its report that Chinese equipment makers have ties to that country’s military and must not be allowed to acquire companies in the US.

Huawei and ZTE have denied all allegations in the US panel report. In December 2012, the finance ministry asked the Foreign Investment Promotion Board (FIPB) to examine if the country needed to change its foreign direct investment norms or take pre-emptive action against Chinese vendors in the wake of the US Congress panel’s report. FIPB, however, did not take any decision on this.

Spokespersons of ZTE and Huawei could not be reached for comments.

Currently, only 35% of telecom equipment demand is met by domestic production. According to US-based Ovum Research, the demand for telecom equipment in India accounts for 6.2%, or 76,940 crore, of the global demand of 16.38 trillion during the last fiscal year. The report further said the requirement of 3G (third generation networks) equipment is expected to be 10,127 crore while 4G equipment was likely to be 12,659 crore in 2015-16.

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