Research Reports
Huawei and ZTE's Key Development Strategies for 2008
February 12, 2008 / China Research Team
33 Page, Topical Report
US$2,180 (Single User License)

Abstract

The last few years have seen a new wave of M&A activity in the global mobile communications industry, including the merger between Lucent and Alcatel, Nokia's acquisition of Siemens' network equipment division, and Ericsson's acquisition of Marconi. One of the key factors driving this trend has been the emergence of major new players such as Huawei and ZTE in the global mobile communications equipment market. By 2007, overseas sales accounted for over 50% of total sales for both Huawei and ZTE. In 2008, the two companies have been restructuring their network equipment businesses, while also allocating more resources to mobile phone production and working even more actively to develop overseas markets. This report will examine the business strategies that Huawei and ZTE are adopting in 2008.
  •  List of Topics
  •  List of Figures
  •  List of Tables

In the world's mature mobile communications markets, leading mobile operators such as Vodafone, Orange, and Hutchison have had a very disappointing return on the huge sums of money that they invested in large-scale 3G network deployments. The financial difficulties resulting from the 3G debacle have forced these operators to trim their expenditure on network equipment, and have led them to adopt a very cautious attitude towards investment in new-generation networks. Rather than establishing new networks, operators are seeking to leverage their existing network resources to develop niche markets than can provide an immediate return on investment. Huawei and ZTE are in a position not only to provide these leading international mobile operators with low-priced network equipment, but also to supply them with the small-volume mobile phone and 3G data cards they need to develop niche markets. As a result, Huawei and ZTE have begun to win orders from these operators.

Telecommunications operators in emerging markets tend to be relatively small, with limited financial resources. Income levels in these countries are low, and the telecommunications infrastructure is often next to non-existent. To succeed in emerging markets, telecommunications equipment suppliers need to be able to offer reasonably priced solutions. However, as economic conditions improve and commercial activity expands -as has been happening in many African and Latin American economies -demand for broadband Internet access starts to take off; equipment suppliers that are able to offer a total solution will be better placed to develop these markets successfully. Despite the trend towards liberalization and privatization in the African market since 2005, Huawei and ZTE will continue to benefit from their having been active in this regional market for many years, and from the close relationships that they have established with African governments and telecommunications operators.

The main challenges that Huawei and ZTE will face in the future can be summarized as follows:

Firstly, the Chinese equipment vendors' aggressive development of overseas markets is causing marketing and management costs to grow rapidly, which is starting to erode profit margins. Operating in emerging markets also carries with it considerable political and economic risk.

Secondly, with the global trend towards FMC (Fixed Mobile Convergence) and all-IP networks, telecommunications network architecture is becoming steadily more complex. This growing complexity will help to make network maintenance and management services an increasingly important source of revenue growth for telecommunications equipment vendors. To achieve success in this segment of the market, a company needs to possess a comprehensive mix of technical, product, and service capabilities. Currently, this market is still dominated by Ericsson; Huawei and ZTE have begun to secure orders for access network equipment and terminal products, but they still have a long way to go before they will be able to compete effectively against companies such as Ericsson. New entrants generally lack the long-standing, close relationships with telecommunications operators that are necessary for this success in the network management market. Huawei and ZTE's development of this market over the next few years will be a key factor for them to become a first-tier supplier in mature markets and in other parts of the world.

Appendix

Research Scope

This report examines the business strategies adopted by leading Chinese telecommunications equipment vendors Huawei and ZTE in 2008.

Glossary of Terms

3G

 

Third Generation Mobile Communications

4G

 

Fourth Generation Mobile Communications

ADSL2+

 

Asymmetric Digital Subscriber Line2+

CDMA

 

Code Division Multiple Access

CDMA AIE

 

CDMA AirInterface Evolution

CDMA2000

 

CDMA2000 1X EV-DO

FMC

 

Fixed-mobile convergence

FTTP

 

Fiber to the premises

FTTH

 

Fiber To The Home

GPRS

 

General Packet Radio Service

GSM

 

Global System for Mobile Communications

IP

 

Internet Protocol

IMS

 

IP Multimedia Subsystem

Legacy ETN

 

Ethiopian Television Network

MGW

 

Multimedia Gateway

MSC

 

Mobile Softswitch Center

MinM

 

MAC-in-MAC

NGN

 

Next-Generation Network

PBT

 

Provider Backbone Transport

PSTN

 

Public Service Telephone Network

TD-SCDMA

 

Time Division Synchronous Code Division Multiple Access

VDSL2

 

Very high bit rate Digital Subscriber Line

VPLS

 

Virtual Private LAN Service

UTRAN LTE

 

UTRAN Long Term Evolution

WCDMA

 

Wideband Code Division Multiple Access

WiMAX

 

Worldwide Interoperability for Microwave Access

List of Companies

Aircell

 

 

Alcatel

 

 

Algeria Telecom

 

 

Antel

 

 

Arobase Telecom S.A

 

 

AZ COM

 

 

Baikalvestcom

 

 

BeiCei JV

 

 

BSNL

 

 

BT

 

 

BT Movio

 

 

BTC

 

 

Calcomp

 

泰金寶

CAMTEL

 

 

Canar Telecom

 

 

CAT

 

 

CAT Telecom

 

 

Celcom

 

 

Celltel

 

 

China Netcom

 

中國網通

China Telecom

 

中國電信

Chinguitel S.A.

 

 

COLT

 

 

CoTeCal

 

 

CTBC

 

 

Datang Mobile

 

 

Digicel Caribbean Aruba

 

 

Digicel Caribbean Barbados

 

 

Digicel Caribbean Cayman Islands

 

 

Digicel Caribbean Jamaica

 

 

Digital Telecommunications Phils

 

 

Digitel

 

 

DVCOM

 

 

Econet

 

 

eMobile

 

 

Emtel

 

 

Enisey Telecom

 

 

EOCG Wireless Aruba

 

 

Ericsson

 

 

Etapa Cuenca

 

 

Etisalat

 

 

Evoxus

 

 

Excelcom

 

 

FiberNet

 

 

Foxlink

 

正崴精密

FT

 

 

Gambia Telecommunications Company

 

 

Globacom

 

 

Globe Telecom

 

 

G-Mobile

 

 

HaiTel S.A.

 

 

HFCL Infotel

 

 

Huawei

 

華為

Hutchison

 

 

Indosat

 

 

Inventec

 

 

Itisaluna Iraq

 

 

IUSACELL

 

 

IZB

 

 

JTL

 

 

Kaluga Cellular Communications

 

 

Korea Telecom

 

 

KPN

 

 

KPN Mobile

 

 

Leap Wireless

 

 

Libyana

 

 

Lucent

 

 

Marconi

 

 

Megafon

 

 

Mobilkom A.S.

 

 

Mobily

 

 

Morocco Telecom

 

 

Movilnet

 

 

M-TEL

 

 

MTN

 

 

MTS

 

 

Multi-Media Telephony

 

 

Mundo Startel

 

 

National TeleCom

 

 

Natrindo

 

 

Nepal Telecom

 

 

Neuf

 

 

Nigerian Telecommunications

 

 

Nokia

 

 

Nortel

 

 

NTCH Inc

 

 

NTS

 

 

Oasis S.P.R.L.

 

 

Oman Telecommunications

 

 

Optus

 

 

Orange Poland

 

 

P4

 

 

PBTL

 

 

PCCW

 

 

Peoples Telecommunication & Information Services

 

 

PGH

 

 

Potevio

 

 

PT Indosat

 

 

PT Smart Telecom

 

 

PTCL

 

 

Radiomovel Telecommunications S.A.

 

 

Reliance

 

 

Rostelecom

 

 

Saudi Telecom Company

 

 

Siano

 

 

Siemens

 

 

Skylink

 

 

SkyTel

 

 

Sotelma

 

 

Sprint Nextel

 

 

Starcomms Limited

 

 

Starcoms

 

 

StarHub

 

 

Suburban Telecom

 

 

Sudatel

 

 

Sun Cellular

 

 

Sunday

 

 

Suntel

 

 

TATA

 

 

Tatem Telecom

 

 

TD-Tech

 

 

Telecom Argentina

 

 

Telecom Fiji Limited

 

 

Telecom Malagasy SA.

 

 

Telecom Namibia

 

 

Telefonica

 

 

Telefonica Argentina

 

 

Telekom Baltija

 

 

Telemar/Oi

 

 

Telemobil

 

 

Telepon Selular

 

 

Telesystems of Ukraine

 

 

Televork

 

 

Telfort

 

 

TIM

 

 

Tiscali

 

 

TM

 

 

Togo Telecom

 

 

Transtelecom

 

 

True Move

 

 

Viatel

 

 

Vimpelcom

 

 

Visafone

 

 

Vmobile

 

 

Vodafone

 

 

VPT

 

 

Wana

 

 

Zamtel

 

 

ZTE

 

中興

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