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India Tells Mobile Firms to Delay Deals for Chinese Telecom Equipment
NEW DELHI — Worried about reports of Chinese hackers and spying, the Indian government has effectively barred local mobile phone operators from making deals with Chinese telecommunications manufacturers, according to the head of India’s main cellular industry trade group.

India is running a trade deficit with China and the issue could further strain relations between the two countries.

In December, the Telecommunications Department quietly asked Indian mobile phone operators to suspend deals with foreign equipment companies, citing security concerns, Rajan S. Mathews, director general of the Cellular Operators Association of India, a trade group, said in an interview on Friday.

This week the government told several mobile phone operators that proposed deals with Chinese companies could not go ahead right now, industry executives said.

The government had told operators in December that it was worried that a foreign company could install spying software, and asked local operators to examine foreign manufacturers carefully, Mr. Mathews said. But in recent months, the Indian government has lifted the restriction on most foreign manufacturers; those that are not cleared are “principally Chinese,” he said.

The Ministry of Home Affairs, which deals with domestic security in India, said on Friday that it could not comment on the issue.

A spokesman for the Telecommunications Department, S. Prakash, acknowledged on Friday that the government had recently stepped up scrutiny of foreign equipment suppliers. But he said “the government has not banned any particular equipment or manufacturer” and decided “on a case-by-case basis” whether to allow deals to happen.

“This happens everywhere,” Mr. Prakash said, because “telecommunications devices are likely to get misused.”

A spokeswoman for a Chinese equipment industry trade group said Friday that her group had heard reports “that India would ban importing telecom equipment from China for one or two months.”

The Indian government’s behavior would violate World Trade Organization “principles of ‘national treatment’ if they only ban importing equipment from China but continue importing from the United States and Europe,” said Zhang Huiling, a spokeswoman for the China Chamber of Commerce of Import and Export of Machinery and Electronic Projects.

“We will closely follow the latest development,” she added.

Foreign telecommunications equipment makers have been an integral part of India’s fast-growing mobile phone industry, because India does not have any significant manufacturers of its own.

Mr. Mathews said the government had decided to “lock down all the barnyard doors,” because of concerns about Chinese hackers.

According to a report released last month by the Citizen Lab at the University of Toronto, a gang of computer hackers based in China conducted an extensive spying operation in India that began last year, obtaining sensitive information, including documents from the Ministry of Defense.

Relations between India and China, the world’s most populous nations, have been strained recently over border issues and India’s trade imbalance with China. And India recently clamped down on the number of work visas allotted to foreign companies, a move regarded by some as being aimed at Chinese power companies that import laborers from home to build plants here.

India’s mobile phone industry is second only to China’s in terms of subscribers, with 584 million at the end of March. More than 20 million new subscribers were added in March, and local phone operators are under pressure to add network capacity quickly.

Indian mobile operators invested about $34 billion in networks and other capital expenses in the last fiscal year, the Indian telecommunications trade agency estimated. About 40 percent of that equipment came from China, where products cost about 20 percent less than those made by European providers like Nokia and Siemens.

According to an executive with one of India’s largest mobile operators, the government told the company this week that it could not go through with the purchase of equipment from UTStarcom, a company that is headquartered in California but which has most of its employees and managers in China.

The government said some deals the company was planning were “good to go, and these were not,” said the executive, who declined to be identified because the government had not made its policy official.

Mr. Prakash, of the Telecommunications Department, said he could not speak specifically about UTStarcom, but acknowledged “that might have happened.”

Chinese companies, including Huawei Technologies and the ZTE Corporation, have “actively participated” in the construction of India’s telecommunications network since 1999, the Chinese import-export group said in a statement on Friday. The two companies employ nearly 7,000 people in India, and 85 percent of those employees are Indian, the statement said.

Indian mobile operators considering deals with foreign telecommunications manufacturers have been required since December to submit the details to the Telecommunications Department, which forwards the information to the Ministry of Home Affairs for security clearance, according to the cellular operators association.

In a memo posted on its Web site on March 18, the Telecommunications Department clarified its security clearance rules, stating that the “operation and maintenance of telecom networks should be entirely by Indian engineers” and adding that the “dependence on foreign engineers should be minimal” within two years from a purchase.

Indian telecommunications companies are also required to demand that foreign manufacturers transfer their technology to make “critical” equipment and software within three years of a sale, the memo said, concluding that any Indian company that did not enforce technology transfers would be subject to criminal prosecution.

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