Chinese Ante Portas!

By Ronald Gruia (News - Alert)

During the second Punic war (218-201 B.C.), the great Carthaginian general and strategist Hannibal managed to march on Rome after conquering almost all of Lower Italy. At that time, Cicero, in one of his philippic speeches mentioned “Hannibal ante portas”, which literally means “Hannibal before the gates”. This famous sentence is still used as a warning of imminent danger – indeed, one might well use it in reference to Chinese telecom infrastructure vendors such as Huawei (News - Alert) and ZTE as they increasingly compete against North American and Western European players.

For instance, Huawei performance thus far this year has been outstanding, despite a tough macroeconomic environment, having become the Number One optical vendor and improving its mobile infrastructure market share to Number 3 all in Q1 2009. ZTE (News - Alert) has been also aggressive in the Americas and one example is its voicemail win at Vivo (Brazil’s largest wireless operator) with its AnyService platform (they’re on the short list for messaging tender at TIM Brasil as well with the same offering). The company has also shipped 10 million handsets globally in Q1 2009, a 30 percent increase compared to the same period last year (68 percent of those were in overseas markets).

Of course, many pundits believe that these vendors progress is mainly due to very healthy capital spending by operators in Asia Pacific, such as ongoing 3G mobile rollouts in countries such as China and India. However, deeper inspection reveals that significant portion of these companies’ growth comes from service providers in other regions such as EMEA and Latin America. Despite this progress, the North American region still remains relatively under-penetrated by the Chinese NEVs with very few exceptions (such as Huawei’s HSPA overlay win at Bell Canada (News - Alert) and Telus, alongside NSN).

North America: The Final Frontier? At MWC in Barcelona this year, Verizon Wireless and AT&T both announced their intentions to deploy LTE (News - Alert), with Verizon going a step further and announcing the winners of the RAN, packet core and IMS portions of their LTE deployment. Given the more accelerated pace of the Verizon (News - Alert) buildout (initial deployment plans for late 2009 with a couple of cities probably having only data card service), this was not surprising. AT&T’s plans called for a deployment that will more likely start in the 2010-11 timeframe. However, some details began to emerge about AT&T’s deployment.

A story that was widely circulated in Wall Street (based on a UBS report) suggested that AT&T has chosen Ericsson (News - Alert), Alcatel-Lucent and Huawei for the RAN (Radio Access Network) portion of its LTE trials. Chances are AT&T will eventually pick two out of these three vendors for their actual deployment which could start sometime in 2011. The fact that Nortel (News - Alert) was not on this short list is not surprising, given the uncertainty of the company; however, the fact that NSN is not a part of the list is surprising. Other parts of the LTE buildout (packet core and IMS) remain to be decided and it’s likely that AT&T probably will make selections by Q3.

The inclusion of Huawei in the LTE RAN trial short list represents an important initial victory for Chinese vendors. After establishing an important beachhead in North America with mobile wins at Cox (News - Alert) and Leap in the US and the joint Bell Canada/Telus HSPA overlay, a win in the actual AT&T LTE deployment would further establish Huawei as a force to contend with in North America.

Outlook & Conclusions. Western NEVs have to closely watch this better performance from Chinese players, as the latter improve their share of the market. Huawei has been particularly active in the swap-out contracts where the previous incumbent was displaced (examples include Vodafone Hungary, Ghana Telecom and Turkcell (News - Alert)), perhaps the best indicator of the “sharp end” of the market. There have also been some reports of US$15 billion loan for various activities including project financing for the number 2 Chinese player (ZTE). During turbulent times like this, vendor financing can be, simply put, an irresistible temptation for telecom operators.

The implication to Ericsson, Alcatel-Lucent (News - Alert) and NSN is to focus on differentiators such as services (this also includes advisory/planning) and compelling applications that can take advantage of the new LTE environment. Services will increasingly become more important and can serve potentially as a back-door to win future business. If NSN was indeed left out of this initial short list for RAN trials, this might serve as an impetus for the JV to consider making an investment in Nortel’s carrier business in order to attain more scale in North America.

Ronald Gruia (News - Alert) is Program Leader and Principal Analyst at Frost & Sullivan covering Emerging Communications Solutions. Reach him at [email protected].

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