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DoT's call to ban Chinese equipment use in BSNL and MTNL is a hoax; here's why

Going by the historical track record of DoT, the decision seems more like a knee-jerk reaction which is being taken to join the "ban Chinese" bandwagon

twitter-logoManu Kaushik | June 19, 2020 | Updated 20:58 IST
DoT's call to ban Chinese equipment use in BSNL and MTNL is a hoax; here's why
Govt has advised BSNL and MTNL to stop using Chinese equipment in their 4G expansion

On Wednesday, some reports suggested that the Department of Telecommunications (DoT) is planning to ask state-run telecom companies BSNL and MTNL to stop using Chinese equipment in their 4G expansion. It was also reported that the DoT will ask private telecom operators like Airtel and Vodafone Idea to reduce their dependence on Chinese equipment. These reports came at a time when tensions have escalated between India and China in Galwan Valley.

But going by the historical track record of DoT, this seems more like a knee-jerk reaction which is being taken to join the "ban Chinese" bandwagon. Telecom is one of the most dependent sectors on China. Amongst the top equipment players, Huawei, ZTE and Fiberhome control a large share. So when DoT asks for a boycott of Chinese equipment, it's essentially trying to turn a nearly impossible tide. Why?

Companies like Huawei and ZTE have built their customer base on the back of three things: competitive price, easier payment terms, and prompt after-sales servicing. A senior executive with Airtel told Business Today last year that when a particular site goes down, the response time of Huawei is in hours as against days for others like Ericsson, and Nokia.

Also, why telcos would choose local vendors when Huawei can give a similar product for a lesser price, and at favourable payment terms spread over 5-10 years. "BSNL and MTNL orders are taken away by Chinese equipment makers. If we don't get volumes, our prices will never be competitive. Chinese players undercut our rates because they probably get prior intelligence on the bids, and then use that information to grab orders. How do you expect a Rs 1,000-crore local vendor to compete with $122-billion Huawei," says an executive of one of the largest local vendors.

Also Read: AGR dues: No big relief; back to square one for Vodafone Idea

Local vendors think the only way Indian operators can gain scale and serve the market is when the government bans Chinese companies to participate in tender. Their excitement and hyperbole on the recent reports are palpable. "It's 100 per cent practical for Indian vendors to power telecom networks in the country. Though the equipment prices will go up temporarily for the telcos, in the long-term, we will be able to reduce our dependence on foreign entities," says the executive quoted above adding that there are some companies in India - Tejas, VNL, Lekha Wireless, Sankhya Labs - who have full capabilities in the 4G equipment space.

"We do have the capabilities. For some reason or the other, all tenders are fixed in a way that favours foreign players," says Smita Purushottam, founder of think tank SITARA. Purushottam is one of the strongest supporters of indigenisation of the telecom equipment market. She had written a host of letters to various authorities, including the Prime Minister, to highlight the rampant favouritism towards Chinese companies in the government tenders.

In March, for example, BSNL came out with a tender to deploy 50,000 new 4G sites in north, east, west and south zones and around 7,000 new sites for Delhi and Mumbai for MTNL. The tender had two conditions which allegedly favoured foreign entities over domestic players. For instance, it had asked for the bidder to have experience of executing 20 million network lines in addition to having a minimum annual turnover of Rs 8,000 crore.

The Department for Promotion of Industry and Internal Trade (DPIIT), which comes under Commerce Ministry, rapped DoT for putting such restrictive conditions in the bid document, and reportedly threatened it with disciplinary action.

DPIIT is the nodal agency to implement public procurement (reference to Make in India) order under which all government departments are supposed to give preference to domestic suppliers in their tenders. The preferences include purchase price margin and minimum local content requirements of 50-60 per cent on key equipment (like BTS). For instance, if the local supplier's quoted price is 20 per cent higher than the lowest price foreign bidder (L1), the order will be awarded to the local supplier.

Also Read: Govt mulls customs duty hike, trade barriers on 'non-essential' imports amid stand-off with China

Though the intent of the policy is to support domestic suppliers, experts say that the Chinese firms, who are being incentivised by their government to capture foreign markets, quote prices which are unbelievably low. For instance, a global tender was issued by BSNL (for 10G DWDM Network) in June 2019 which had a budget of Rs 274 crore. ZTE won the bid at Rs 162 crore, which was 41 per cent lower than the budget amount. The Indian firm Tejas Networks, whose bid amount was second-lowest, lost out despite quoting aggressively at Rs 232 crore. There are plenty of such examples.

Since BSNL directly comes under DoT, most of its key decisions (like tender framing) are taken by DoT secretaries. "With the alleged bias in BSNL towards Chinese firms, the DoT's plans seem like smoke and mirrors," says president of another local equipment maker.

Lobby body Cellular Operators Association of India (COAI) Director General Rajan S Mathews has said that Indian telcos have more to lose if the government decides to ban Chinese companies. While DoT's knee-jerk reaction on the issue will end up hurting telcos and consumers, the industry feels that to solve this conundrum, which keeps cropping up every few years, there's need for a structured plan. "We need to make a roadmap as to what technologies we need in the next two-three years, and put industry and research on the task to develop those technologies. In case we still need to import components, we need to identify multiple sources in different countries," says N.K. Goyal, president of Telecom Equipment Manufacturers Association (TEMA).

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