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Banning Huawei won’t be a viable choice for India despite national security interests
REUTERS/Marko Djurica
https://qz.com/on/beyond-silicon-valley/
By Niharika Sharma
Aviation and social media reporter
August 26, 2020
Amid border tension with China, India is reportedly trying to fade out Chinese tech from its telecom industry.
The Narendra Modi government has asked telecom firms in India to avoid using equipment from Chinese companies such as Huawei and ZTE in the future, according to a source-based report published in Financial Times on Aug. 25. There hasn’t been any formal communication on the matter from the government yet, and Quartz could not independently verify the story.
But industry experts are not surprised at the possibility of a blanket ban on Huawei in India. After all, the company is already facing a similar plight in the US, the UK and Australia over alleged links with the Chinese government.
However, there are concerns about the survival of the Indian telecom industry without Chinese equipment at a time when most companies in the sector are reeling under heavy losses.
“Losing giants like Huawei and ZTE may not be a viable choice despite national security interests,” said Sonam Chandwani, managing partner at Mumbai-based law firm KS Legal & Associate.
Why Indian firms need Huawei
India’s telecom sector is heavily dependent on both Huawei and ZTE mainly because they are more economical compared to other options.
Huawei gets most of its revenue in India from the 4G network equipment segment, where two of the country’s largest telecom firms, Bharti Airtel and Vodafone Idea, are its clients. The two companies together hold a 55% share of the Indian wireless telecom market.
ZTE, on the other hand, counts state-owned Bharat Sanchar Nigam (BSNL) among its clients. Around 40% of BSNL’s 3G network is built by ZTE.
The two Chinese companies have been at the centre of India’s 5G ambitions. In 2018, Bharti Airtel along with Huawei conducted India’s first 5G network trial. Earlier this year, Vodafone Idea announced a partnership with Huawei, ZTE, Ericsson, and Nokia for its 5G trial.
“Huawei, with its low prices, domestic investments, and long-term repayment schemes, made a mark in the telecom sector. The Indian telecom industry needs players like Huawei to bail it out of the present status quo,” Chandwani of KS Legal said.
Stiff competition from Reliance Jio, owned by India’s richest man Mukesh Ambani, has been taking a toll on Bharti Airtel and Vodafone Idea. For the quarter ended June 30, Vodafone-Idea posted a loss of Rs25,460 crore ($3.9 billion), while Bharti Airtel’s loss was at Rs15,933 crore ($2.4 billion).
In addition, Bharti Airtel and Vodafone Idea have massive outstanding dues to the government in lieu of adjusted gross revenue (AGR), which is bound to worsen their financial health.
AGR is a fee-sharing mechanism between the government and telecom companies that was adopted in 1999. However, for over a decade, the two sides were locked in a legal battle over whether or not the non-telecom revenue of a company would be included in AGR. In 2019, India’s supreme court agreed to the government’s definition of AGR, which exposed telecom firms to a demand of more than Rs1 lakh crore.
As of now, Reliance Jio, which was launched only in 2016, had paid Rs195 crore worth AGR dues. For the older telecom firms, the burden is larger. The telecom department has calculated Vodafone Idea’s dues at Rs58,254 crore and Airtel’s at Rs43,000 crore. Both the companies have asked India’s apex court to provide at least 15 years to clear the dues.
Some believe that Indian telecom firms, except Reliance Jio, may be inching towards crushing debt and possible bankruptcy. And any pressure to move away from Chinese suppliers will only make things worse.
“Switching to other options will be a challenge, especially financially, as networks are already facing problems due to AGR dues. This will impact Airtel and Vodafone more than Jio,” said Ankit Malhotra, an analyst at Hong Kong-based Counterpoint Research.
Besides working with telecoms, Huawei also sells mobile devices in India under two brands: Huawei for the premium segment and Honor for the budget shoppers. In 2018, Honor was among the fastest-growing brand in India but its market share was limited to around 3%.
There are a host of brands that can easily replace Huawei if its smartphones are banned in India but in other segments, that might be tricky to do.
Can Huawei and ZTE be replaced?
Besides the Chinese players, other options for telecom network equipment in India are South Korea’s Samsung, Sweden’s Ericsson, and Finland’s Nokia. These companies are already active in India but shifting completely to them “may lead to an increase in procurement cost and reduce competitiveness in 5G space,” said Malhotra of Counterpoint.
Moreover, some say that Huawei is superior in quality over all its rivals.
“Huawei, over the last 10 or 12 years, has become extremely good with their products to a point where I can safely today say their products at least in 3G, 4G that we have experienced is significantly superior to Ericsson and Nokia without a doubt. And I use all three of them,” Sunil Mittal, an Indian telecom industry veteran and chairman of Bharti Airtel, had said in 2019.
A ban on Chinese equipment will, however, benefit one Indian telecom firm disproportionately: Ambani’s Reliance Jio.
In July this year, Ambani had announced that Jio Platforms, a subsidiary of his flagship firm Reliance Industries, had developed a homegrown 5G solution, which will be ready for field deployment next year. This makes Jio the first Indian telecom firm to have 5G capabilities.
“While other firms will be struggling with finances and an additional cost of replacing the infrastructure, Jio will enjoy the cost-benefit of its in-house solution,” Malhotra said.
qz.com
REUTERS/Marko Djurica
https://qz.com/on/beyond-silicon-valley/
By Niharika Sharma
Aviation and social media reporter
August 26, 2020
Amid border tension with China, India is reportedly trying to fade out Chinese tech from its telecom industry.
The Narendra Modi government has asked telecom firms in India to avoid using equipment from Chinese companies such as Huawei and ZTE in the future, according to a source-based report published in Financial Times on Aug. 25. There hasn’t been any formal communication on the matter from the government yet, and Quartz could not independently verify the story.
But industry experts are not surprised at the possibility of a blanket ban on Huawei in India. After all, the company is already facing a similar plight in the US, the UK and Australia over alleged links with the Chinese government.
However, there are concerns about the survival of the Indian telecom industry without Chinese equipment at a time when most companies in the sector are reeling under heavy losses.
“Losing giants like Huawei and ZTE may not be a viable choice despite national security interests,” said Sonam Chandwani, managing partner at Mumbai-based law firm KS Legal & Associate.
Why Indian firms need Huawei
India’s telecom sector is heavily dependent on both Huawei and ZTE mainly because they are more economical compared to other options.
Huawei gets most of its revenue in India from the 4G network equipment segment, where two of the country’s largest telecom firms, Bharti Airtel and Vodafone Idea, are its clients. The two companies together hold a 55% share of the Indian wireless telecom market.
ZTE, on the other hand, counts state-owned Bharat Sanchar Nigam (BSNL) among its clients. Around 40% of BSNL’s 3G network is built by ZTE.
The two Chinese companies have been at the centre of India’s 5G ambitions. In 2018, Bharti Airtel along with Huawei conducted India’s first 5G network trial. Earlier this year, Vodafone Idea announced a partnership with Huawei, ZTE, Ericsson, and Nokia for its 5G trial.
“Huawei, with its low prices, domestic investments, and long-term repayment schemes, made a mark in the telecom sector. The Indian telecom industry needs players like Huawei to bail it out of the present status quo,” Chandwani of KS Legal said.
Stiff competition from Reliance Jio, owned by India’s richest man Mukesh Ambani, has been taking a toll on Bharti Airtel and Vodafone Idea. For the quarter ended June 30, Vodafone-Idea posted a loss of Rs25,460 crore ($3.9 billion), while Bharti Airtel’s loss was at Rs15,933 crore ($2.4 billion).
In addition, Bharti Airtel and Vodafone Idea have massive outstanding dues to the government in lieu of adjusted gross revenue (AGR), which is bound to worsen their financial health.
AGR is a fee-sharing mechanism between the government and telecom companies that was adopted in 1999. However, for over a decade, the two sides were locked in a legal battle over whether or not the non-telecom revenue of a company would be included in AGR. In 2019, India’s supreme court agreed to the government’s definition of AGR, which exposed telecom firms to a demand of more than Rs1 lakh crore.
As of now, Reliance Jio, which was launched only in 2016, had paid Rs195 crore worth AGR dues. For the older telecom firms, the burden is larger. The telecom department has calculated Vodafone Idea’s dues at Rs58,254 crore and Airtel’s at Rs43,000 crore. Both the companies have asked India’s apex court to provide at least 15 years to clear the dues.
Some believe that Indian telecom firms, except Reliance Jio, may be inching towards crushing debt and possible bankruptcy. And any pressure to move away from Chinese suppliers will only make things worse.
“Switching to other options will be a challenge, especially financially, as networks are already facing problems due to AGR dues. This will impact Airtel and Vodafone more than Jio,” said Ankit Malhotra, an analyst at Hong Kong-based Counterpoint Research.
Besides working with telecoms, Huawei also sells mobile devices in India under two brands: Huawei for the premium segment and Honor for the budget shoppers. In 2018, Honor was among the fastest-growing brand in India but its market share was limited to around 3%.
There are a host of brands that can easily replace Huawei if its smartphones are banned in India but in other segments, that might be tricky to do.
Can Huawei and ZTE be replaced?
Besides the Chinese players, other options for telecom network equipment in India are South Korea’s Samsung, Sweden’s Ericsson, and Finland’s Nokia. These companies are already active in India but shifting completely to them “may lead to an increase in procurement cost and reduce competitiveness in 5G space,” said Malhotra of Counterpoint.
Moreover, some say that Huawei is superior in quality over all its rivals.
“Huawei, over the last 10 or 12 years, has become extremely good with their products to a point where I can safely today say their products at least in 3G, 4G that we have experienced is significantly superior to Ericsson and Nokia without a doubt. And I use all three of them,” Sunil Mittal, an Indian telecom industry veteran and chairman of Bharti Airtel, had said in 2019.
A ban on Chinese equipment will, however, benefit one Indian telecom firm disproportionately: Ambani’s Reliance Jio.
In July this year, Ambani had announced that Jio Platforms, a subsidiary of his flagship firm Reliance Industries, had developed a homegrown 5G solution, which will be ready for field deployment next year. This makes Jio the first Indian telecom firm to have 5G capabilities.
“While other firms will be struggling with finances and an additional cost of replacing the infrastructure, Jio will enjoy the cost-benefit of its in-house solution,” Malhotra said.
Banning Huawei won’t be a viable choice for India despite national security interests
India's telecom sector is heavily dependent on both Huawei and ZTE mainly because they are more economical compared to other options.
qz.com
