China’s Huawei Technologies Co. and ZTE Corp. are set to be kept out of India’s plans to roll out its 5G networks as relations between the two countries hit a four decade low following deadly border clashes.
The South Asian nation will apply investment rules amended on July 23 that cite national security concerns to restrict bidders from nations it shares land borders with to keep out the companies, people familiar with the issue said, asking not to be identified citing rules for speaking with the media.
The Ministry of Communications will restart pending discussions on approvals for 5G trials by private companies including Bharti Airtel Ltd., Reliance Jio Infocomm Ltd., and Vodafone Idea Ltd. that were delayed by the nationwide lockdown, they said.
India’s decision echoes actions by the U.S., U.K. and Australia, which have raised red flags about the companies’ Chinese government links. The U.S. Federal Communications Commission has officially declared both companies national security threats.
The process to auction 5G may spill into next year, according to the officials. A decision on the ban is expected to be announced in a week or two after approval from the prime minister’s office, they said.
A spokesman for the communications ministry and the prime minister’s office didn’t immediately respond to queries seeking comment. Huawei and ZTE didn’t respond to emails seeking comments.
While India allowed Huawei to participate in its 5G trials earlier this year, its stance against Chinese companies hardened after China’s actions along their disputed border in early May. That military standoff, which turned deadly in June killing 20 Indian soldiers and an unknown number of Chinese troops, is now in its fourth month.
In late June, India banned ByteDance Ltd.’s viral short-video service TikTok and dozens of other Chinese apps, citing threats to its sovereignty and security.
“Telecom infrastructure has become part of national security assets and nations are looking at controlling and regulating them just like they do power and water,” said Nikhil Batra, Sydney-based analyst at International Data Corp. “But the Indian market is already battling infrastructure and regulatory problems. The network equipment market is a small one. So India’s challenges will compound from such a decision.”
Telecom companies were expected to invest $4 billion in setting up 5G infrastructure, according to IDC estimates.
That could be tough as companies including Bharti, Vodafone Group Plc and even state-run firms continue to struggle to make existing 4G networks profitable. There’s already heavy reliance on Chinese equipment in its 4G networks. And shutting doors to Huawei and ZTE could increase costs of a switch to 5G by as much as 35%, according to Rajiv Sharma, head of research at SBICAP Securities Ltd.