China’s booming market

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In the bustle of Beijing and the calm of a Shanghai research centre Alan Burkitt-Gray looks at how ZTE is making inroads into international markets. He talked to company vice presidents Shi Lirong and Ye Weimin

GTB Nov Dec 2004

Pp 16-17


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 stand.

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 download.

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 said.

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 in handsets.

Handset production doubles

"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 international markets.

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 China.

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 domestic market.

Neighbouring markets

"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 Indonesia".

More recently, ZTE has scored successes in Africa, with orders from Algeria, Nigeria, Libya and Morocco.

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 neighbouring stand.

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 important."

Financial packages

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."

Work with competitors

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 example?

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."

Multimedia access

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 killer application."

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."

Personal handyphone

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 Ye.

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 Ye.

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.

Total solution

"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 software platform."

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. GTB