India Insists on Technology Transfer by Telecom Vendors

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India's Department of Telecommunications wants network equipment vendors to transfer technology to Indian manufacturers within three years of selling equipment to any Indian operator, according to documents posted by the DOT on its Web site on Monday.

Network operators must also apply for security clearance for all new equipment not manufactured by Indian companies, and should employ only Indian engineers to maintain the equipment, as part of a series of measures to ensure the security of Indian network infrastructure, the DOT said in letters to service providers dated March 18 and March 4.

Service providers must include a clause in purchase orders requiring foreign manufacturers to transfer technology within three years from the date of the purchase order, DOT wrote in the March 18 letter. Both the vendor and the service provider shall be penalized in the event of non-compliance, it said.

The new rule has confused a large number of telecommunications equipment makers who sell to Indian service providers. A spokeswoman for Nokia Siemens Networks said on Tuesday that the company was checking whether the DOT wanted the technology transferred to the local Indian manufacturing operation of the foreign company, or to a third-party manufacturer.

DOT was not immediately available for comment.

The new order regarding technology transfer is part of an exercise by the Indian government to have larger control over procurement by Indian telecommunications service providers.

The insistence on security clearance is seen as another instance of the Indian government wanting to keep a check on the use of telecommunications equipment from Chinese vendors, according to an analyst who declined to be named. India and China went to war in 1962, and strained relations over a border dispute between the two countries have increased since last year.

The Indian government recently indicated its security concerns about the use of telecommunications equipment from Chinese vendors, particularly in border areas. A large number of Indian service providers buy from Chinese vendors.

Huawei Technologies, which had revenue of US$1.3 billion from India last year, plans a 50 percent increase in revenue from the country this year.

The company does not expect any problems from the new security rules, which apply to all foreign equipment makers, a spokesman for Huawei said on Tuesday.

"We will also comply with the new transfer of technology rules, and we may accelerate our plans for local manufacturing," he said.

Under the order from the DOT, security clearance will not be required for passive telecommunications equipment such as connecting cables and test and measurement equipment, or for equipment and software manufactured or developed in India by Indian owned or controlled manufacturers.

The security clearance for a product of a particular brand and specification for one operator will be considered as "benchmark clearance" for the industry for a period of two years, the DOT said.

Telecommunications service providers will not require security clearance to outsource operations to network service providers, but they will have to obtain security clearance for the equipment that the outsourcers use, DOT said.

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