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Rollout of 5G may see headwinds if OEMs not allowed to import Chinese telecom gear

Telecom operators and non-Chinese network equipment vendors are in a fix as the National Security Council Secretariat (NSCS) has not extended its waiver that had allowed OEMs to import network equipment manufactured in its Chinese factories. The waiver was given last year and expired on June 15

While the industry is seeking another extension for a few years, the rollout of 5G is likely to face major headwinds if the NSCS does not extend the waiver, said an industry representative. Top European and US vendors will not be able to import certain network equipment from China, which will be essential for the deployment of 5G network.

While non-Chinese network vendors have gotten the requisite “trusted sources” and “trusted products” tags needed to conduct future business with Indian operators, they are facing major headwinds due to the NSCS’s decision to disallow network equipment manufactured in their Chinese factories.

Deadline elapsed
In the aftermath of the Galwan crisis two years ago, telecom network vendors came under the NSCS’s scrutiny, which wanted the OEMs to pass the requisite security clearances before operators could buy network equipment from them. Chinese gear-makers were essentially banned from providing any further network equipment; however, even for non-Chinese vendors, the import of network equipment from their China factories was disallowed. Last year, vendors such as Nokia, Ericsson, Cisco, Dell and HP managed to convince the NSCS to give them a one-year waiver.

Top executives working in this space told BusinessLine that the deployment of new technologies such as 5G is going to be very hard without allowing equipment to be initially procured from their China factories — most of these companies have very small production bases in India

“China is essentially the manufacturing hub for telecommunications equipment, which means that they usually have the additional capacity to manufacture equipment based on new technologies such as 5G, which might initially carry the volumes to justify manufacturing them elsewhere in the world or in India, later,” said the executive.

Additional leeway from NSCS
Network vendors have urged the government to give them an additional 12-month leeway or provide a quota of network deployments, which would cover the initial 5G deployments before volumes pick up and production is localised. On the counter, vendors are willing to share granular detail of products imported from China to address the government’s security concerns.

The lobbying efforts from network equipment makers and vendors are minimal as the NSCS’s mandate is not of immediate concern for operators. “At present, operators have very little CAPEX as they await the 5G auctions, where they will be able to purchase spectrum. Capital expenditure will pick up in the next few months, where operators will encounter difficulty in quickly and cost-effectively deploying 5G networks without certain cutting-edge equipment from OEMs’ factories in China,” said the executive.

Given that almost 50 per cent of the network equipment is imported from China, according to Department of Commerce Data, 5G deployment without equipment manufactured in China could be very hard. When asked if vendors will ever be able to to wean off their dependency on China, the executive said: “As long as China remains the manufacturing hub due to a myriad of geopolitical reasons, most MNCs will still want their China factories to be a part of their supply chain overall.” The Hindu BusinessLine

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