Stretched Indian Cell Phone System: Now Espionage Fears

July 24, 2010Indiaby EW News Desk Team

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As India prepares to adopt new import regulations designed to thwart spying and sabotage,

the country’s mobile phone operators say the costs of implementing the rules could squeeze their thin profits even further

and accelerate an impending wave of consolidation in the industry.

The proposed rules would require phone operators in India to have all foreign equipment they purchase inspected by third-party laboratories in the United States, Canada or Israel

for the presence of spyware or “malware” — software that could monitor or shut down the country’s mobile phone networks.

The rules are being reviewed by the Indian Ministry of Law and Justice and are expected to be introduced shortly, said Rajan Mathews, director general of the Cellular Operators Association of India, a trade group.

The rules would apply to network equipment like towers and switches but not to consumer handsets.

India is concerned about spying and sabotage from neighboring countries, particularly China and Pakistan.

A report this year by the Citizen Lab at the University of Toronto said

a gang of computer hackers based in China had conducted extensive spying operations in India, including obtaining information from the Department of Defense.

The costs of implementing the regulations could accelerate consolidation in the world’s second largest mobile market by subscribers, after China.

Some Indian operators are already unprofitable and most charge less than one penny a minute for local calls.

Last month, Reliance Communications, one of India’s biggest operators, said it would sell 26 percent of the company to raise cash, as we pointed out at the time.

“At this point, no one has a clue” about how the new rules will affect operators, said Mr. Mathews of the trade group.

He said the rules are an interim step and that India plans to set up its own testing center for telecommunications equipment in the next few years.

It could cost $100 million to set up that facility, he estimated.

Mobile operators say that the companies that could be approved to do the inspections are:

EWA Canada of Ottawa; Infoguard, an information management company in a Lansdale, Pennsylvania; and Altal Security Consulting, based in Israel.

Since December, telecommunications operators in India have been required to vet the purchase of any foreign equipment with the Ministry of Home Affairs, which deals with security concerns.

The ministry has approved a few dozen purchases, and hundreds more are still waiting, operators in India say.

Chinese equipment manufacturers have been effectively shut out of the country, operators say.

The strain on Indian mobile phone networks is being felt strongly in some urban areas,

with phone users facing dropped calls and “network busy” messages.

Some personal data devices do not get signals for hours at a time.

“All orders have been on hold for the last seven months,”

said one telecommunications executive who did not want to be identified because of the sensitivity about security concerns.

The company has been unable to build its network in some rural areas, and service quality is being affected in other areas where it has gained new subscribers, he said.

A. Raja, a cabinet minister in the Ministry of Communications and Information Technology, told reporters on the sidelines of a conference that he had recently met the minister of Home Affairs.

“We do hope the issue will be resolved with the Home Ministry in a couple of weeks,” he said.

A Ministry of Home Affairs spokesman declined to comment.

At the end of May, India had 617 million mobile phone subscribers.

Indian phone operators spent about $34 billion on equipment and other capital expenses in the past fiscal year,

the trade group estimates, with about 40 percent of that from China, according to this article from the New York Times.

Many individuals in India have mobile phones

but do not have landline phones, broadband Internet or any other telecommunications connection,

making the mobile phone network incredibly important, operators here say.

“In India, you only have one network,” said Mr. Mathews. “If that goes down, you are finished.”

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