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On 4 May 2021, the Department of Telecom or the DoT permitted four telecom service providers to conduct 5G technology trials in India. While there was no explicit restriction on the use of Chinese equipment, none of the participating service providers have tied up with manufacturers from the neighbouring country. In March, the Narendra Modi government amended licensing conditions for service providers to only use equipment from ‘trusted sources’, which the National Cybersecurity Coordinator or the NCSC will determine based on an expert committee’s recommendations.

This approach to maintain network security in India signals a shift in policy-making.

Rather than imposing blanket bans on organisations or vendors, India seems to have adopted a goals-based approach through setting standards for security that all vendors must comply with. Such an approach is more sustainable since it ensures that commercial decisions are aligned with national interests through predictable regulation. Further, using standards to enforce network quality is less likely to be challenged by China at the World Trade Organization or under the Bilateral Investment Treaty for being inconsistent with trade and investment rules.


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From bans to standards

Concerns about the safety of Chinese telecom equipment stem from China’s 2017 National Intelligence Law. It requires the country’s companies to share their data and information with the government in order to support the State’s intelligence-gathering activities. Most countries, led by the USA, saw this as a tool which the Chinese government would use to spy on other countries using Chinese telecom equipment deployed in their 5G networks. In response, India pursued an unclear policy on using equipment from specific Chinese vendors. In 2018, the DoT had excluded companies like Huawei and ZTE from participating in trials to develop 5G use cases in India. In 2019, the government announced that it would allow all vendors to participate in 5G trials. But in 2020, amid rising border tensions between the two countries, the Modi government reportedly stopped the state-run Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Limited (BSNL) from using Chinese equipment to upgrade their mobile networks to 4G. In contrast, the Indian government is now looking beyond bans and setting standards to ensure that unsafe equipment is not used in telecom networks in India.

In December 2020, India announced the National Security Directive on the Telecommunication Sector (NSDTC), mandating service providers to purchase equipment from trusted sources. It aims to ensure that there are no backdoor vulnerabilities – alternate routes into a system that can expose it to security breaches – in telecom equipment infrastructure. Telecom gear vendors will be classified into ‘trusted’ and ‘non-trusted’ categories, and the directive will mandate operators to source equipment only from those who fall in the first category starting from 16 June 2021. The list of trusted vendors is yet to be made public. However, Chinese companies were not a part of the meetings where service providers and other key stakeholders finalised the criteria for identifying trusted vendor sources.


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Prioritising security over costs

The setting of quality standards to ensure network security is a welcome move. However, the government must be wary of using this as an instrument to target Chinese equipment solely because of its provenance. Estimates suggest that eliminating the use of telecom equipment from China could increase procurement costs of service providers by up to 20 per cent. Given the cost differential, in addition to the deteriorating financial health of telecom companies, the service providers may place a greater emphasis on minimising cost rather than ensuring network security.

Chinese vendors Huawei and ZTE dominate the global telecom equipment market. In 2020, both companies together accounted for approximately 41 per cent of the global revenues from equipment sales. Chinese telecom equipment is widely used in India as well, with one-fourth of it provided either by Huawei or ZTE. However, the market share of the country’s vendors has moderated in the past couple of years. For instance, Huawei’s share in total revenues fell from 28.10 percent in the financial year 2018-19 to 19.83 percent in the following year. This shift could primarily be due to two reasons. First, Reliance Jio, India’s largest telecom operator by number of subscribers, solely uses 4G infrastructure from Samsung, a Korean company. Second, 2G and 3G networks of Airtel and Vodafone, which were built by Nokia and Ericsson, are now being upgraded to 4G. Currently, 30 per cent of Airtel, and 40 per cent of both Vi and BSNL’s overall network is developed by Chinese vendors.

The NSDTC recognises this dependence, and does not require TSPs to replace their existing infrastructure. It will not affect any ongoing annual maintenance contracts or upgrades to old equipment either, if already inducted in the network. Going forward, mandatory security standards will help India ensure that network security is prioritised over cost considerations.


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Standard setting agnostic of national origin

Standards for network equipment must ensure safety, reliability, and performance, agnostic of national origin, for three reasons. First, it ensures that Indian consumers can avail high quality telecom services which, in turn, will propel economic growth. An increase in internet traffic by 10 per cent leads to 3.1 per cent growth in GDP per capita, according to an ICRIER report from 2018. Second, standards help increase regulatory certainty for service providers and equipment manufacturers in India by setting expectations in advance. This is in stark contrast to sudden bans, which impose considerable costs on the economy. When equipment manufacturers know the minimum standards that they must comply with, they will make necessary investments in skills and infrastructure to make globally competitive products in India. It will also help service providers plan purchases and network rollouts in a timely manner.

Such a policy environment can help India realise its vision of enhancing the use of indigenous network equipment. It will also enable India to advance 5G technology development under its agreements with the EU, the UK, and Japan. Finally, it demonstrates India’s commitment to global trade rules, by ensuring that network equipment from any country is evaluated on the same criteria irrespective of its provenance.

The authors work at the Koan Advisory Group, a technology policy consulting firm. Views are personal.

This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.

(Edited by Anurag Chaubey)

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