4G spectrum: Telcos buying equipment from Chinese vendors like Huawei, ZTE may be barred from upcoming auction

The Cellular Operators Association of India (COAI) has so far been opposed to any restrictions being put on Chinese vendors and has said geopolitical issues should not be mixed with business.

After imposing restrictions on public procurement from China and other countries that share borders with India, the government is considering to extend it to private companies where they acquire public assets on lease basis.

This is being considered in the case of spectrum which is auctioned by the government and bought by private telecom operators. Once finalised, private telecom operators such as Bharti Airtel and Vodafone Idea may not be able to buy telecom equipment from Chinese vendors like Huawei and ZTE.

The proposal being considered is that since spectrum is a public asset and is auctioned by the government to private players, the government is very much within its rights to impose restrictions, which it imposed last week on public procurement. These restrictions do not apply to procurement by private companies otherwise.

The government, which plans to auction 4G spectrum in certain bands later this year, plans to put in a condition in the notice inviting applications that companies which are successful in winning the bids cannot procure equipment from foreign companies belonging to countries which share a common border with India.

Though the plan to auction 5G spectrum is not on the cards this fiscal considering the weak financial health of the telecom firms, sources said whenever the auctions take place for this band, similar restrictions on Chinese firms would be placed.

The Cellular Operators Association of India (COAI) has so far been opposed to any restrictions being put on Chinese vendors and has said geopolitical issues should not be mixed with business. However, companies seem to be preparing themselves for any such eventuality. For instance, Bharti Airtel is considering not renewing its contract with Huawei for managing its 4G network in the Tamil Nadu circle. The 4G networks of telcos like Bharti and Vodafone Idea have largely been built by Huawei and ZTE. These networks are built on turnkey contracts and managed by the vendors. Companies renew the contract when it comes up for renewal. What Bharti has planned is that as and when the contracts come up for renewal, they would not be awarded to Chinese vendors but to European players like Nokia and Ericsson.

Sources said in building a new network, the cost of Chinese vendors is generally 15-20% lower than competition, but for managing the network the same cost advantage does not apply and a switchover can easily be done.

The government last week revised its guidelines requiring bidders from any country sharing a land border with India to register with a “competent authority” to be eligible for government contracts. However, it has made an exception for bidders from countries where India has extended a line of credit or is engaged in development projects. This way countries like Nepal, Bhutan and Bangladesh would be exempted. As a result, the order is aimed at firms belonging to China as those based in Pakistan don’t participate in government contracts.