Amendment to telecom equipment procurement rules may lead to increase in capex, tariff hike

The Department of Telecommunications' (DoT) recent regulatory amendment, which mandates the telcos to procure telecom equipment only from 'trusted sources', will not only increase the capital expenditure of operators but may also create a ground for companies to hike tariffs, industry experts say.

The DoT on March 10 amended the Unified Access Service Licence, thereby mandating the use of equipment only from trusted sources from June 15, 2021.

Prashant Singhal, EY Emerging Markets Technology, Media & Entertainment and Telecommunications (TMT) Sector Leader said: "The guidelines on procuring telecom equipment from trusted sources are an encouraging move towards securing the country’s digital infrastructure. A good step to create a robust domestic manufacturing ecosystem and advancing the ‘Atmanirbhar Vision’ – bringing in vendor diversity."

However, from a sector standpoint, this is likely to have some bearing on capex and impact the cost of deploying networks, depending on the permissible list of vendors notified. The resulting impact may drive cost escalations, but also makes a compelling case for telcos to raise tariffs, Singhal added.

In its statement, DoT said: "The government through the Designated Authority will have the right to impose conditions for procurement of Telecommunication Equipment on grounds of Defence of India, or matters directly or indirectly related thereto for national security. Designated Authority for this purpose shall be National Cybersecurity Coordinator in this regard the licensee shall provide any information as and when sought by the designated authority."

With effect from June 15, 2021, the licensee shall only connect Trusted Products in its network, and also seek permission from the designated authority for upgradation of existing Network, utilising the telecommunication equipment, not designated at Trusted Products," said DoT.

"However, these directions will not affect ongoing Annual Maintenance Contracts (AMC) or updates to existing equipment already inducted in the network as on date of effect. The licensees shall comply with the Guidance for Enhanced Supervision and Effective Control of Telecommunication Networks, as per the guidelines to be issued by the licensor," DoT added.

The government's latest move comes as it aims to ensure that Chinese telecom equipment companies like ZTE and Huawei are kept out of the approved telecom vendor list as India very soon plans to roll out the fifth-generation (5G) technology.

This is not the first time that the government has made attempts to keep the Chinese firms out of India's technology space.

As a result of the ongoing border tensions with China, the Ministry of Electronics and Information Technology under Section 69A of the Information Technology Act had in June 2020 blocked 53 Chinese apps followed by 118 more apps in September '20 and 43 new apps in November'20.

So far, the government has blocked 220 Chinese apps including - PUBG, Shein, TikTok citing threats to national security and sovereignty.