India tightens telecom rules on security concerns

The sun rises behind a communications tower in New Delhi March 20, 2006.

NEW DELHI (Reuters) - India on Wednesday said telecom equipment vendors must allow inspection of their gear and made carriers solely responsible for the security of their networks, addressing security worries that had led to restrictions on Chinese manufacturers.

Earlier this year, India barred some local mobile phone operators from placing orders with China's Huawei Technologies [HWT.UL] and ZTE Corp (0763.HK) 000063.SZ because of security concerns, Indian telecom industry officials have said.

The restrictions centred around India's suspicion that Chinese equipment may have spying technology embedded to intercept sensitive conversations and government documents.

Carriers in the world's fastest-growing cellular market must have their equipment certified by an approved international audit agency, the Department of Telecommunications said in a note posted on its website late on Wednesday.

If a breach is found, carriers face penalties of 500 million rupees ($11 million) per order and 100 percent of the contract value,while a vendor could be barred from supplying Indian operators.

The vendors must allow the telecoms carrier, government or its designated agencies to "inspect the hardware, software, design, development, manufacturing facility and supply chain and subject all software to a security/threat check at the time of procurement of equipment," and subsequently, it said.

The government also said carriers must work to ensure that the operation and maintainance of networks is entirely by Indian engineers and dependence on foreign engineers should be "minimal and/or almost nil" within the next two years.

For details of the new rules, see dot.gov.in

New Delhi has denied any country-specific ban, though it had made it mandatory for carriers to obtain security clearance from the telecoms ministry before placing equipment orders.

The dispute had at one point threatened to snowball into a diplomatic row between India and China, which have been trying to reduce mistrust and improve relations after they fought a war in 1962.

"We are glad to know about this resolution and our experts are studying the notification for overall industry implications," a Huawei spokesman said in a text message to Reuters when asked for the company's comments on the government move.

Shenzhen-based Huawei and ZTE have taken on global names like Ericsson, Nokia Siemens Networks and Alcatel Lucent in recent years, winning major contracts in both emerging and developed markets and are active in India.

India is the world's fastest-growing wireless market with operators signing up 16 million new users a month on average. Global mobile equipment makers are fighting to win lucrative contracts in Asia's third-largest economy.

Demand for equipment is set to increase as carriers roll out third-generation networks after a recent spectrum auction.

(Editing by Tony Munroe and Surojit Gupta)