India, USA are deeply suspicious about Chinese telco kit -

Concerns from America and India over the security of Chinese-made telecommunications
equipment, could potentially slow global sales growth for China’s major gear makers, iSuppli has warned.

Lee Ratliff, senior analyst for broadband and the digital home at the analyst company, said: “India’s move to obstruct the orders from the Chinese telecommunications has kicked off a sequence of events that resulted in billions of dollars of lost revenue for global telecom market vendors and significant project delays for India’s telecom service providers.”

He said India’s concern stems from suspicions that foreign-made equipment—particularly Chinese gear—represents a significant security risk given the possibility that sensitive information could be transmitted to foreign governments through firmware back doors.

And the US also has its worries. Last week a group of US senators asked the Obama administration to review a bid from China’s Huawei Technologies to supply telecommunications gear to Sprint Nextel, citing concerns over espionage.

Meanwhile, Huawei and fellow Chinese equipment maker ZTE reported that the Indian government started blocking purchase orders placed with them in mid-February.

According iSuppli the "stakes are enormous," it said with the combined global market for wired and wireless infrastructure telecommunications equipment  expected to amount to exceed $65 billion in 2010, and rise to more than $83 billion in 2014, this could have a detrimental effect on the China market.  

The company cited a range of various sources, claiming that India started requiring all equipment purchase orders to be reviewed by the government for approval before allowing authorisation. It also said western vendors experienced severe delays in the approval process, with purchase orders with Chinese vendors being rejected outright.

However, India has never outright acknowledged that a ban existed, with iSuppli saying that orders were put on “indefinite hold” while being investigated.

By the end of June, a total of 450 orders amounting to more than $2 billion had been put on hold due to the security clearance process, said India’s Economic Times. Of these, 27 had been approved—all with Western vendors such as Alcatel-Lucent, Ericsson and Nokia Siemens Networks.

In May, India’s state-run telephone company BSNL also announced that Huawei and ZTE would be excluded from bidding on a $500 million GSM expansion project, most likely to avoid delays because of the security clearance process, despite the fact that BSNL had chosen Huawei as a GSM vendor for a project earlier in the year. However that had since been cancelled, iSuppli's research indicated.

It added that even before the recent concerns expressed by the senators, the Chinese telecommunications gear makers have faced obstacles when doing business in the United States.
“Huawei and ZTE rank among the top telecom equipment vendors globally, but neither has been able to crack the U.S. market despite more than a decade of effort,” Ratliff said.

He added that lingering concerns over security have reportedly led the US government to ban transmission of its sensitive data over networks using Chinese equipment. A 2008 Pentagon report to Congress highlighted Huawei’s links to the Chinese government, furthering concerns. Huawei’s efforts to buy its way into the U.S. market through acquisitions of 3COM, 2Wire, and Motorola’s wireless unit have all been scuttled due to concerns of a US government veto.

“The key elements that have made Chinese vendors successful—inexpensive labour, a home-field advantage in China’s hot telecom market, and access to an almost unlimited line of credit though government banks—are unlikely to disappear any time soon.

“However, the vendors face serious opposition in several of the largest markets left to penetrate. Having already picked the low-hanging fruit, these companies may find it more difficult to grow in the future than they have in the past. And each pause on the way to growth for the Chinese companies is an opportunity instead for Western vendors to get back on their feet and adjust to the new competition,” he added.

We contacted the Chinese Embassy in London for comment. At press time, it had not responded.