ZTE, other Chinese telecom vendors unlikely to get relief despite plans to go local

As security concerns remain over use of Chinese equipment, the government is unlikely to soften regulation of telecom vendors such as ZTE.

The government is unlikely to offer concessions to Chinese telecom equipment manufacturers such as ZTE regardless of their proposal to produce and export some of the equipment through tie-ups with Indian partners, senior officials have told Moneycontrol.

According to the officials, who spoke on condition of anonymity, the issue arose after Chinese telecom equipment manufacturer ZTE recently proposed local production and export of some of its equipment through an Indian partner.

ZTE, China’s second-largest telecom equipment manufacturer, on June 29 announced a partnership with Hyderabad-based Celkon Resolute to manufacture routers at an upcoming facility at the Tirupati Electronics Manufacturing Cluster (EMC-1) in Tirupati, Andhra Pradesh.

“Companies can make products in India, but as per the policy, non-trusted equipment can’t be deployed in Indian networks. Whatever they do, the government’s stance and policy will not be changed, and they will have to fulfil the requirement under the trusted sources regime,” a top official told Moneycontrol on condition of anonymity.

The ‘Trust’ issue

China's Huawei and ZTE are yet to receive approval from the National Cyber Security Coordinator (NCSC), as they have yet to meet the clearance requirements.

According to regulations, all companies seeking approval must disclose information about their local subsidiary, parent company, ownership structure and technical specifications for hardware and software products.

The official, however, said the government would not stop them from starting to make Wi-Fi gear in India. “They can still sell it in the Indian market like other vendors or export it,” the official said.

Regulations require telecom equipment to be cleared by authorised sources before being used in networks operated by service providers. However, Wi-Fi routers can be sold directly to consumers without prior approval.

Telecom companies such as Bharti Airtel previously offered Huawei and ZTE routers to their customers but switched to brands like GX after facing increased government scrutiny.

Earlier this year, the DoT asked telecom operators to evaluate the extent of their legacy network equipment sourced from "non-trusted sources" and send a detailed assessment report, including software and hardware deployed since they started operations in the country. Through this assessment, the DoT aims to understand the potential costs involved in replacing such legacy equipment with new ones procured from "trusted sources" to improve national security .

ZTE-Celkon Resolute tie-up a non-starter?

In June, ZTE and Celkon Resolute said their partnership would initially create jobs for about 1,000 people. Andhra’s IT minister Nara Lokesh said the government wanted to explore manufacturing gear from other verticals from ZTE's global portfolio in the state.

Despite a formal announcement, the partnership has not proceeded in the absence of any clarity from the Centre and relevant authorities.

Multiple sources confirmed that the companies have not signed any commercial deals.

“It was more like a sales pitch. It hasn’t started. ZTE reached out to the DoT (Department of Telecommunications) for Wi-Fi 6 production, but no concrete outcome has come out,” a source told Moneycontrol.

The sources said ZTE wanted to build trust with DoT and other authorities with its local manufacturing plans.

“This was the first step, and then the aim was to get the trusted sources' approval from the designated authority, the National Cyber Security Coordinator. If everything had gone as planned, ZTE would have gone ahead with its investments. Discussions took place as we were looking for exports from India, but we didn’t get any clarity,” the source, who is privy to the discussions, said.

ZTE didn’t respond to Moneycontrol's queries.

Future tense

The future of Huawei and ZTE’s operations in India remains uncertain following the escalation of the India-China border standoff. While India banned several Chinese apps in 2020, it didn’t explicitly bar Huawei and ZTE from operating in India.

These companies and others must fulfil new conditions under the National Security Directive on the telecommunication sector, which came into effect in June 2021 and mandates service providers buy equipment only from "trusted sources".

The directive, which aligned with global concerns about Chinese equipment companies being used for spying, effectively barred Huawei and ZTE from India’s 5G network rollout and limited their role in the existing 4G and wireline networks.

Since the implementation of the so-called trusted sources regime, Huawei and ZTE have mainly worked with Vodafone Idea and Bharti Airtel to maintain their network contracts.

They were allowed to replace some components and network upgrades under the special exemption the designated authority and the DoT provided.

The apparent recent softening of the government's stance on certain investments from Chinese companies raised hopes for Chinese vendors. Industry watchers, however, say any relief for Huawei and ZTE is unlikely as their cases differ due to cybersecurity concerns.

India has recently granted approval to several Chinese electronics companies to set up operations in the country. These approvals have mainly focused on companies specializing in electronics components. For example, India has allowed Luxshare, a major Chinese electronics manufacturer, and a joint venture between Bhagwati Products (Micromax) and Huaqin Technology to establish their businesses in India.