End to Ban on BSNL Procuring Equipment from Chinese Vendors

Sachin Pilot, India’s junior telecoms minister, has confirmed that BSNL is now allowed to procure equipment from Chinese equipment vendors, reports Reuters. In a response to a question in parliament, Pilot wrote that "now BSNL may enter into agreement with foreign vendors for purchase of equipment/software/services". In April this year, the Indian government had banned Indian operators from procuring gear from Chinese vendors, while in June the government agree to allow Chinese telecoms equipment imports following security checks. Originally, the restrictions had been put in place due to concerns that Chinese-made equipment could incorporate malware or spyware. The government position on the ban, at least reported in the local and international press, has been somewhat inconsistent, with AFP reporting in May 2010 citing government sources to say there was no "blanket" ban on Chinese imports. However, the statement by Pilot would appear to represent final confirmation that BSNL can go ahead with the procurement of Chinese gear. Below are the most recent developments on the ban.

• China-India: 9 August 2010: ZTE Accepts Indian Security Conditions for Telecom Equipment Imports
• India: 2 June 2010: India Allows Import of Chinese Telecom Equipment After Security Checks
• India: 24 May 2010: BSNL Issues Fresh GSM Tender to Three Western Equipment Vendors
• India: 14 May 2010: India Asks Huawei, ZTE to Disclose Ownership Details
• India: 5 May 2010: Huawei Seeks Meeting with Indian Authorities over Equipment Ban
• China-India: 30 April 2010: India Bans Purchase of Telecoms Equipment from Chinese Vendors—Report

Outlook and Implications

• ZTE Confirms Negative Impact: In its first-half earnings release, ZTE said revenue from Asia declined due to "the incident relating to safety inspection of communications equipment in India". Indeed, revenues from its Asian (excluding China) operations fell on a double-digit basis in the first half. In this period, Asian (excluding China) revenues accounted for 17.1% of its total revenues, down from 23.3% in the first half of 2009. The ban will have had a similar impact on Huawei, although the vendor does not release detailed financial data. The lifting of the ban, will, however, enable both vendors to bid for fixed and mobile tenders at BSNL, which should have a positive impact on revenues in 2011 and beyond. Their price advantage that Huawei and ZTE can offer should stand them in good stead in a market where mobile margins are tight.
• Benefit for BSNL: The decision to allow Chinese vendors to bid in BSNL tenders is also good news for the Indian incumbent. BSNL has had somewhat of a rollercoaster ride in the last couple of years. Recent moves to partially privatise the company have foundered due to staff opposition (see India: 27 July 2010: India Mulling Sale of BSNL Stakes). In March 2010 the operator’s 93 million line GSM tender was cancelled owing to concerns over its procurement processes and procedures (see India: 8 March 2010: BSNL Cancels 93-mil. GSM Line Tender). The operator is currently evaluating bids for a much smaller tender of 5.5 million GSM lines (see India: 23 July 2010: BSNL Allocates Two Months to Evaluating Bids for Installation of 5.5 Mil. Mobile Service Lines), but it appears unlikely that it (and MTNL) will get refunds for the 295.98 billion rupees (US$6.3 billion) they paid for pan-India s3G/BWA spectrum. The cancellation of the major expansion contract has meant that BSNL has lagged its main competitors in terms of growth. Between June 2009 and June 2010 BSNL reported mobile subscriber growth of 33.2%, a little lower than Bharti (33.5%), but much lower than Reliance (41%), Tata (87.5%) and Vodafone (42.7%).