With the recent border tension with China escalating, clouds of uncertainty hang once again over 5G trials and the fate of Chinese vendors like Huawei and ZTE – whether they would be allowed to participate or not. The government, which had allowed telecom operators to file applications along with the Chinese vendors in January, has now decided that a ministry of home affairs-led committee will take a final call in the matter.
The committee will also have members from the department of telecommunications, Intelligence Bureau (IB) and National Security Council Secretariat.
The matter whether Chinese vendors would be allowed to participate in 5G trials or not was debated at length last year after the US administration hardened its stance against Huawei and went on sending advisories to other nations. Finally, in January the DoT allowed the telecom operators to file applications with the vendors of their choice stating that there’s no ban on any vendor, Chinese or otherwise. However, the matter did not move beyond it.
Meanwhile the companies have filed their applications. Most of the operators have submitted applications with multiple vendors. Reliance Jio, for instance has submitted applications for trials with Ericsson, Nokia, Huawei, and Samsung. Similarly, Bharti Airtel and Vodafone Idea have submitted with Nokia, Ericsson, Huawei and ZTE, while state-run BSNL/MTNL have submitted with ZTE and Nokia.
While Jio’s application with Huawei can be seen as non-serious because it is the only company not having anything from the Chinese vendors in their 4G network, the same cannot be said about the other operators. Jio may have submitted an application with Huawei but since a new network like 5G will be laid over the existing 4G network, giving the final contract or any part of it to a Chinese vendor is highly unlikely.
However, for Bharti in the overall network, the share of Huawei is about 30%. In the case of Vodafone Idea it is around 40% because upgradation of 3G to 4G is slow and has not kept pace with that of Bharti Airtel. If we see the state-run BSNL, its 3G network is largely built by Chinese ZTE taking its share in the total network to 40%. BSNL does not have 4G so far. Therefore, any denial of permission to these operators to go ahead with trials with Chinese vendors would increase their procurement cost by about 20-25%.
Though the government has not taken any stand so far not to allow private telecom operators to award contracts to Chinese vendors, a word of caution in this regard has been sounded by the Cellular Operators Association of India, which has said that geopolitical decisions should be kept separate from commercial ones.
Unlike the mobile handset industry where replacing Chinese supply chain and products is almost impossible, replacement is very much a possibility in the telecom equipment market but this would come at a cost. The market size of the telecom equipment market is around Rs 12,000 crore and the share of Chinese products is around 25%. Since there are several European vendors also in this segment, banning Chinese vendors is possible but telecom operators could see an increase in their procurement cost by about 20%. In addition, Chinese vendors also provide attractive vendor financing, which may be lost to Indian operators.