Connect with us


Govt’s FDI call may deter telcos from sourcing 5G gear from Chinese vendors: Analysts

The government’s decision to monitor foreign direct investment (FDI) deals from China may make Vodafone Idea and Bharti Airtel wary about any deep engagements with Chinese vendors, Huawei and ZTE for 5G gear procurements when the fast broadband technology arrives in the country, say telco executives and industry experts.

But in the near term, the two telcos are unlikely to overhaul network gear procurement plans immediately as there are no curbs around equipment sourcing from Chinese suppliers, they added.

They said VIL and Airtel — who source a sizeable chunk of their present 3G and 4G gear needs from Chinese vendors – may gradually choose to de-risk fresh 4G and future 5G gear procurements by opting to buy from non-Chinese suppliers such as Ericsson, Nokia and Samsung to minimise business risks and supply disruptions.

“The government’s decision may have some business implications, read across for incumbents (Airtel and VIL), when it comes to them going for increasing 4G network gear procurements or buying 5G equipment from Chinese vendors in the next 12-18 months, which can trigger business risks,” Rajiv Sharma, research head at SBICap Securities, told ET.

A senior executive at one of the two older telcos said that with the government monitoring FDI deals from China, the carrier could be wary of sourcing critical gear from Chinese vendors.

“It will certainly come up in discussions just before the commercial deployment of 5G since telecom is a key industry and it glues and connects everything. There is a lot of discussion on 5G and government will have to decide,” the executive said.

India’s 5G spectrum sale though is unlikely before August 2020 at the earliest due to the ongoing Covid crisis and continuing financial stress in India’s debt-laden telecom industry.

Analysts though don’t expect VIL and Airtel to switch vendors in the near-term in circles where Huawei and ZTE are existing gear suppliers, given that such contracts are long-term coupled with the criticality of equipment compatibility. More so, since equipment incompatibility can impact network stability and downtime.

Moreover, the restrictions on China FDI may not apply to Huawei as its India operation is a “brownfield” or existing venture, an industry executive aware said. The new Chinese FDI screening rules will primarily impact infusions in greenfield ventures and unicorns (startups valued above $1 billion).

A senior executive of one of the incumbent carriers ruled out any immediate changes in procurement plans, saying it won’t make business sense to rely entirely on non-Chinese network vendors, especially at a time when China has been the fastest to recover from the aftershocks of the Covid19 pandemic, unlike much of Europe and the US.

Rajan Mathews, director general of Cellular Operators Association of India (COAI), downplayed the immediate impact of the stringent rules around Chinese FDI, saying “Airtel and VIL have already hedged their bets by limiting their network exposure to around 20% with Chinese OEMs, and it’s unlikely that they will materially alter this”.

The COAI represents Airtel, VIL and Reliance Jio. At press time, Airtel, VIL, ZTE, Samsung, Ericsson and Nokia did not reply to ET’s queries.

“As a responsible corporate, we’ve always adhered to the laws and regulations of the land and will continue to do so in line with local government policies, especially as we’ve always been strong on compliance,” a Huawei India spokesperson said.

Industry executives also said that as telecom networks increasingly become software-defined and move to Open Source, it would get tougher to determine whether a piece of software is Chinese, Indian, European or American. As a result, any hasty changes in vendor contracts or overhauling of networks could complicate future gear procurements.

―Telecom Techie

Click to comment

You must be logged in to post a comment Login

Leave a Reply