GTB Nov Dec 2004
Supplier interview: ZTE
Telecoms exhibitions are noisy, but
the Expo Comm show in Beijing at the end of October 2004 must
have been one of the noisiest ever — particularly in
the hall where China's competitive operators tried to attract
the attention of new customers with music: live or recorded, it
was loud, very loud.
In the next hall, a little bit
quieter but still a few decibels above the levels familiar to
docile Europeans or Americans, ZTE was nursing a secret on its
Without anything in the way of a
fanfare — though with fanfares blaring out across
neighbouring booths — the company launched the world's
smallest, lightest and most compact 3G handset: 104 grams, 88.5
by 44.6 by 22.5 millimetres, with a 300,000 pixel camera for
still pictures or video calling, and high speed data
ZTE's senior vice president, Shi
Lirong, showed off the phone to visitors: "ZTE is proud of its
position at the forefront of all mobile technologies and
today's announcement is further evidence that our expertise
stretches from network infrastructure to handsets," he
A few days later in the quieter
surrounds of ZTE's research and development centre in Shanghai,
vice president Ye Weimin outlines the company's rapid progress
"Compared with Nokia and Motorola
ZTE is a newcomer to the handset market," he says. "This year
we will supply over 12 million handsets. Next year we can
supply over 25 million, doubling our production." In 2003, the
company made 4.6 million handsets.
Back in the noisy hall in Beijing,
Shi says that the 3G phone, the F808, will be for Chinese and
Apart from the new 3G phone, the
company makes handsets with three different technologies: GSM,
CDMA and PHS, the Japanese-developed system which is losing
market in its home country but is still doing well in
Significantly, ZTE has developed
the 3G phone before China has a single 3G base station in
commercial operation — and before it has even issued
any 3G licences. It will, possibly, license 3G operators in
2005. When services will be operating is anyone's guess.
But the company's decision to
commit funds to develop the handset show a new confidence that
the international market is becoming as important as the
"Seven or eight years ago ZTE was
only focusing on the Chinese market," says Shi. "Seven years
ago we started on our overseas market. We first focused on our
neighbouring countries in Asia, especially those with larger
populations like Pakistan, India, Bangladesh, Indonesia."
The results: success, says Shi. "In
Pakistan this year our sales value reached $200 million. All of
our products are used in Pakistan, such as CDMA and GSM
wireless, and our digital switching, softswitches, digital
transmission and video conference equipment, as well as our
terminals — handsets and fixed wireless."
In India ZTE has supplied "over 1.5
million lines of CDMA", he says. Customers for GSM include "PT
Telekom and PT Indosat, two of the largest operators in
More recently, ZTE has scored
successes in Africa, with orders from Algeria, Nigeria, Libya
What's the secret? Shi is quick to
play down the usual suspicion that decisions are based solely
on cost. "Our technologies are good. We believe our
technologies are the best."
Yes, he admits, "when people think
about Chinese manufacturers, they always think about the cost",
but he suggests — as a band starts playing on a
For terminals, handsets, low cost
is important, he says. But for infrastructure contracts
customers first evaluate the technology, and "then they will
evaluate your company, your quality control system, and things
like that", says Shi. "After that the price will be
And when it comes to price, does
ZTE have the financial support from banks to help customers pay
for the systems? Yes, says Shi.
"We can provide financing solutions
for our customers. We have lots of partners in the finance
sector. We have China ExIm Bank, the export import bank, we
have the Bank of China, plus the state insurance company, and
there are also some other global financial partners, many
partners that can provide packages for customers."
At the same time ZTE works with a
range of international partners: Shi reeled off a list
including Accenture, IBM, Motorola and Microsoft: "We have lots
of co-operation with these companies. They provide our software
platform, the computer server, to help us with intelligent
networks, things like that. We have a joint venture with
Accenture for billing system and for customer support software.
It's run two years already."
But collaboration has taken on a
new level this year. "Recently we also started to cooperate
with our counterparts. We have started with some European
companies, like Marconi, like Alcatel. We also have cooperation
with Nortel for CDMA trunk radio."
The main purpose of the deals with
what are apparently competitors seems to be to share product
ranges. "That means if ZTE is very strong in one product, we
can support it for our partners," says Shi. "Both sides make
full use of our marketing channels, to sell more products and
to promote our technologies."
Where will this lead? Earlier this
year William Owens, CEO of Nortel, explicitly mentioned
companies such as ZTE and its Chinese rival Huawei as
competitors that the embattled North American giant will have
to come to terms with. At ZTE, does Shi think we're in for a
spell of consolidation among Western manufacturers? And will
ZTE have a role in that? Would it contemplate a merger, for
Shi smiles: "Merging, well it's
still too early to say that. But for cooperation, for product
cooperation and for marketing cooperation, that has started
already," he says. He pauses: "Maybe after several years, we
can try some much more high level cooperation."
How does Shi see the needs of
operators developing over the next few years?
"For the fixed operators, their
core network will be softswitches, and the access network will
be some multimedia integrated access," he says. He's thinking
of a home gateway: "one box that can integrate wireless and
fixed services, wireless LAN and broadband", he explains.
"That means in your home you can
put your computer anywhere, with wireless broadband, and maybe
use your cellphone through the fixed link. And you can have
home monitoring through this box."
On the mobile side, apart from the
gradual move towards 3G, operators "need to focus on special
applications", he says. "Lots of people have tried to find some
killer application, but until now nobody has found a real
In the US, Nextel established
push-to-talk, he notes, "and now ZTE is trying to promote
push-to-talk in China Unicom's CDMA network".
He's not impressed with the idea of
watching TV programmes on mobiles, except maybe for tourists
wanting to catch up with news from home. IPTV through fixed
broadband DSL links makes more sense, he says. "Every operator
needs to find their own killer applications. They will have
different solutions, and can promote their own services and
make profit. That's important."
In the Shanghai R&D centre,
vice president Ye points out that one of the key technologies
is something that is hardly regarded in most of the world: PHS
phones, the "personal handyphone system" pioneered in Japan in
the late 1980s, initially as a type of cordless phone.
China is one of the few other
countries to adopt the PHS standard, and ZTE is one of the few
manufacturers outside Japan. And PHS still has a future, at
least until 2008, he says. "By the end of this year PHS
subscribers will be over 70 million or 80 million in China."
That's up from 35 million at the end of 2003. "So it's
doubling. It has doubled every year from 2001 to 2004," says
In Japan PHS now has only about 6
million customers, but in China the technology is providing
city dwellers with an alternative to both wired home phones and
GSM mobiles. "They can play games or send short messages," says
He emphasizes the point that ZTE
works on all three mobile technologies in use in China, PHS,
GSM and CDMA, as well as 3G technologies, and it is also
working on fixed wireless technologies: it has won contracts in
Algeria and Chile for wireless local loop projects.
A tour round the Shanghai centre
shows the company is keen on allowing network operators to
share resources as much as possible, even between wireless
technologies that would not normally be combined.
"Many companies can only supply GSM
or CDMA. ZTE can supply a total solution in wireless," says Ye.
R&D is shared, and when networks are built the core network
can be shared; even some elements of the base station can be
shared. "In the core network we can use the same hardware and
And ZTE is working on China's
home-grown 3G technology, TDS-CDMA, as well as the two Western
rivals, W CDMA and CDMA 2000.
"We are investing and we can supply
commercial TDS-CDMA by the end of this year," says Ye. "I think
TDS-CDMA is chance for Chinese communications companies." ZTE
is working on network equipment and is developing a handset.
The technology will offers much higher speeds for data
applications, he notes.
And now it's looking at WiMax, with
plans to try out systems in the first quarter of 2005 and to
supply commercial equipment — combined with 3G
technology, says Ye — by the second quarter.
"We can combine WiMax and 3G
technologies together, both in the network and the handset."
End users will need voice and a high-speed data service, he
says. "They may need intelligent handsets. At ZTE we are
investing more in these fields. In the future I thing WiMax
will be a significant product."
Further ahead, ZTE's international
sales will be equal to its domestic Chinese sales by 2008,
suggests Ye, and he forecasts that handset sales will also grow
so that they account for half of ZTE's business. By then, we
might be into the 4G or 5G technology, he hinted. We will see.