Huawei sets eye on three ITI factories

Government’s security concerns about Chinese equipment makers not a deterrent.

Chinese telecom equipment maker Huawei is keen to bid for three manufacturing units of state owned Indian Telephone Industries (ITI). It will also invest $500 million in its research centre in India over the next five years. “We are keen to bid for the ITI units as we have been looking to set up a manufacturing unit in India,” Huawei Telecommunications (India) CEO Max Yang said.

The interest in the ITI units comes in spite of the roadblocks Huawei has faced in India. Its application to the government in 2005 for setting up a fully-owned manufacturing unit was not approved on security grounds. Last year, the government asked state-owned BSNL not to place orders with Chinese suppliers in border areas owing to security concerns. As a result, BSNL has not handed over the contract to Huawei to supply GSM equipment in south India, though it was the lowest bidder. It has also rejected Huawei from supplying equipment in the west.

The government had in fact mooted a proposal to private operators not to buy Chinese equipment for sensitive border areas, but it was turned down. Private telephone service operators said Chinese companies offer prices which are much cheaper than others, and that helps get better prices from other equipment manufacturers. Huawei has fought back saying that it is not a security threat as it supplies telecom equipment all across the globe and to leading Indian companies like Bharti Airtel and Reliance Communications.

ITI has units at Bangalore in Karnataka, Rae Bareli, Naini and Mankapur in Uttar Pradesh, Srinagar in Jammu & Kashmir and Palakkad in Kerala. Of these, the first three are on the block. These make WiMax modems and optical transmission equipment. All three have been made special purpose vehicle for the purpose of disinvestment. The Department of Telecommunications plans to offer 51 to 74 per cent in each of the three SPVs for sale. It has already invited expressions of interest from global consultants to appoint advisors for the sale.

Set up in 1947 and listed on the stock market, ITI is a loss-making company. It reported a net loss of Rs 78.10 crore in the quarter ended September 2009, down from Rs 154.88 crore in the year-ago quarter. The decision to divest its assets will be subject to a review of the government policy that stipulates that only consistently profit-making companies should be considered for stake sale. A senior government official said: “We may also consider loss-making state-owned companies for divestment.”

In July last year, the government had written off the accumulated loss of Rs 2,800 on ITI’s books. Earlier, in 2005-6, the government had infused Rs 1,025 crore in ITI to get it out of financial trouble. In December last year, it directed state-owned telecom service providers BSNL and MTNL to place 30 per cent of their orders for equipment with ITI. These companies have also been asked to give 70 per cent advance payment for all orders placed on ITI so that it does not face shortage of working capital.

Apart from Huawei, Alcatel Lucent is learnt to be interested in the three ITI units. However, there has been no official announcement to this effect.