Stringent rules for foreign telecom vendors

In the wake of security concerns surrounding the Indian telecommunications sector, the Department of Telecommunications (DoT) issued a notification on 28 July amending certain telecom licence terms and imposing specific obligations on telecom operators.

This notification is preceded by other measures taken by the DoT with respect to the supply of equipment, software and services by foreign vendors.

Some of the salient features of the notification are as follows:

1. Within 30 days of the date of the notification, telecom operators should submit to the DoT their organizational policy on security and security management;
2. Telecom operators should ensure that reliance on foreign engineers is made minimal and/or almost nonexistent within a period of two years from the date of the notification.
3. The DoT has approved the template of a security and business continuity agreement (security agreement), which must be executed by telecom operators and their vendors in addition to the main supply or procurement licence agreement. The security agreement must be signed by telecom operators and vendors. In case of any conflict, the terms of the security agreement will prevail. Some important provisions of the security agreement are discussed below:

• Vendors must make provisions to transfer their technology to a telecom operator at the telecom operator’s discretion.
• The telecom operator and the vendor must enter into an escrow agreement with an escrow agent authorized by identified agencies of the Indian government. The escrow materials may be used in the following circumstances: (a) when the vendor fails to provide support, (b) if corporate reorganization is being undertaken (c) on inspection of source code by experts designated by the DoT, (d) whenever the DoT requires the escrow materials.
• The security agreement imposes obligations on vendors where they process any sensitive or personal data in India.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.