Concerns are rising in the US and India over perceived security risks associated with using China-made telecommunications equipment, potentially slowing global sales growth for China's major gear makers, according to iSuppli.
A group of US senators recently asked the Obama administration to review a bid from China's Huawei Technologies to supply telecommunications gear to Sprint Nextel, citing concerns over espionage. Meanwhile, Huawei and fellow China-based equipment maker ZTE reported that the government in India started blocking purchase orders placed with them in mid-February.
"The key elements that have made Chinese vendors successful: inexpensive labor, a home-field advantage in China's hot telecom market and access to an almost unlimited line of credit though government banks, are unlikely to disappear any time soon," said Lee Ratliff, senior analyst for broadband and the digital home at iSuppli. "However, the vendors face serious opposition in several of the largest markets left to penetrate."
India obstacles
"India's move to obstruct the orders from China-based telecommunications has kicked off a sequence of events that resulted in billions of dollars of lost revenue for global telecom market vendors and significant project delays for India's telecom service providers," Ratliff said. "India's concern stems from suspicions that foreign-made equipment (particularly from China) represents a significant security risk given the possibility that sensitive information could be transmitted to foreign governments through firmware back doors."
As pieced together from accounts given by numerous service providers and equipment vendors, India started requiring all equipment purchase orders to be reviewed by the government for approval before allowing authorization. While Western vendors experienced severe delays in the approval process, purchase orders with China-based vendors were rejected outright, iSuppli said.
By the end of June, a total of 450 orders amounting to more than US$2 billion had been put on hold due to the security clearance process, iSuppli cited India's Economic Times as indicating. Of these, 27 had been approved, all with Western vendors such as Alcatel-Lucent, Ericsson and Nokia Siemens Networks.
In May, India's state-run telephone company BSNL announced that Huawei and ZTE would be excluded from bidding on a US$500 million GSM expansion project, most likely to avoid delays because of the security clearance process, iSuppli indicated.
US roadblock
China-based telecommunications gear makers have also faced obstacles when doing business in the US, according to iSuppli.
"Huawei and ZTE rank among the top telecom equipment vendors globally, but neither has been able to crack the US market despite more than a decade of effort," Ratliff said. "Lingering concerns over security have reportedly led the US government to ban transmission of its sensitive data over networks using China-sourced equipment."
A 2008 Pentagon report to Congress highlighted Huawei's links to the China government, furthering concerns, iSuppli observed. In addition, Huawei's efforts to buy its way into the US market through acquisitions of 3COM, 2Wire, and Motorola's wireless unit have all been scuttled due to concerns of a US government veto.
"Fair or not, Huawei's opaque ownership and structure, as well as its CEO's well-known ties to the People's Liberation Army and the Communist party, are likely to handicap the company in India, the US and other countries, at least until Huawei becomes considerably more transparent and consciously distances itself from Beijing."