After 'Prism Gate' and 'Wiretapping Gate' Incidents, Localization of Private Network Communication Equipment Accelerates
"Prism Gate" and "Wiretapping Gate" incidents strengthen the resolve to localize IT equipment
Due to the impact of the 2013 "Prism Gate" and "Wiretapping Gate" incidents, Chinese governments at all levels remain cautiously skeptical of products from European and American technology companies and have correspondingly reduced procurement of such products. It is expected that in the coming years, a wave of domestic IT communication equipment brands replacing European and American brands will emerge in state-owned enterprises and government departments.
In 2013, Cisco, affected by the "Prism Gate" incident, saw its development hindered and underwent large-scale layoffs, especially in the Chinese market, where its decline was evident. In the third quarter, emerging market revenue fell sharply by 21%, with China down 18%, Russia down 30%, Brazil down 25%, and India down 18%. IBM's revenue in China in the third quarter of 2013 fell by 22%, with hardware revenue down 40%.
From the second half of 2013, in the router and switch centralized procurement by China Mobile and China Telecom, ChinaNet core network expansion, and IP equipment centralized procurement bidding, the winning bidders were basically domestic companies such as ZTE, H3C, Guomai Technology, FiberHome Communications, Star-Net Ruijie, China Telecom System Integration Company, Kuawei Technology, and Digital China; foreign companies such as Cisco, IBM, and Microsoft were basically excluded or won only relatively small contracts.
It can be seen from the above that the Chinese government and state-owned enterprises will give priority to purchasing domestic IT equipment products in procurement. Although there is no explicit regulation mandating localization, this is inevitably a trend, because in the face of national information security, all this seems less important.
Private network communication is mainly applied in highly sensitive fields, making localization an inevitable trend
Private network communication products are essential equipment for public security departments in various countries to achieve effective command & dispatch, generally requiring large-scale networking and high-performance products. Therefore, the government and public security market is the largest market segment in the professional wireless communication industry. According to data from the "2015-2020 China Private Network Communication Industry Development Prospects and Investment Forecast Analysis Report" released by Qianzhan Industry Research Institute: private network communication products required by the Chinese government and public security market account for 43%; secondly, public utility departments such as transportation, energy, forestry, and water conservancy, in order to improve production and operation efficiency and ensure production safety, also generally have demand for supporting private network equipment, making them the second largest demand market for the private network communication industry, accounting for 32.1%.
Chart 1: Proportion of Downstream Demand Sectors in China's Private Network Communication Industry (Unit: %)
Additionally: The Third Plenary Session of the 18th CPC Central Committee explicitly proposed the establishment of a National Security Commission to improve the national security system and national security strategy to ensure national security. As private network equipment mainly applied in government and public security fields, its security directly relates to China's national information security and social governance level, and domestic equipment is far more secure for China than foreign equipment. Therefore, the Third Plenary Session laid the policy foundation for subsequent localization of private networks.
Therefore, Qianzhan believes that as domestic companies' technical capabilities in the public network and private network fields gradually mature, and with the support of the domestic policy environment, the localization process of private network communication equipment will accelerate in the future, and domestic companies will face unprecedented opportunities.