Amid all the furore over Huawei – whether its equipment will be banned from some 5G networks, what the impact would be on operators – it is easy to forget that the US attacks on Chinese technology suppliers initially focused on the second vendor, ZTE. Because it is smaller than its compatriot, and less active in developed economies outside China, ZTE is sometimes underestimated in terms of its impact on the 5G landscape.
But in reality, ZTE is a major contributor to 5G and related patents, which alone will give it significant influence over the way future platforms shape up (assuming the US-China trade wars do not result in a full division between western and Chinese alliances when it comes to standards, intellectual property and 5G architectures). And it claims 35 commercial 5G network contracts – fewer than the numbers claimed by its three larger rivals (Ericsson 76, Huawei about 60 and Nokia 50 at the last count), but a respectable tally given ZTE’s heavier focus on emerging economies.
The second Chinese firm is likely to see its star rise as more of the emerging economies, where its strengths lie, start to deploy next generation platforms from 4G to cloud networks. At that point, ZTE’s extensive experience supporting advanced trials and deployments in its home country will help it compete on more than cost and flexible financing – provided it can generate sufficient revenues and profits from Chinese 5G and from ongoing clients in other countries, to tide it over until regions like Latin America and emerging Asia-Pacific, where it has a strong position, start to migrate to new architectures.
Several examples of ZTE’s technological prowess were highlighted over the past week, related to key aspects of 5G including slicing, edge computing and enhanced uplink. Many of the firm’s areas of competitive edge derive from its work with Chinese operators on their own advanced trials or roll-outs.
For instance, it has worked with China Mobile’s Guangdong subsidiary on an edge-based end-to-end network, optimized to support network slices for different industries and for B2B2C applications.
The solution combines a programmable, sliceable network core with several technologies designed to enhance and accelerate network and data processing at the edge. For instance, local hardware and software accelerators, AI video rendering and high performance routing distribution from network layers 23 to 7 are incorporated into the edge infrastructure, to improve performance of localized connectivity and to help deliver fully optimized characteristics tailored for each industry or application.
ZTE, China Mobile and various industry and application partners have been working to test and validate an edge-based service planning method, the four-level deployment architecture, and the planning and optimization processes for network slicing and edge. Test applications include cloud gaming, autonomous driving, content delivery networks and smart logistics.
Another project which could have an impact on broader platforms, not just ZTE’s competitive position, concerns improvements to 5G uplink by combining FDD (paired) and TDD (unpaired) spectrum. This technology was developed with China Telecom, leading to an uplink enhancement technology called FAST (FDD Assists Super TDD).
This uses midband or low frequency bands, such as 1.8 GHz and 2.1 GHz, to improve 5G coverage and performance. It appears to work similarly to Supplementary Uplink, a more standardized approach to this challenge, though one that has not attracted the same level of attention as Supplementary Downlink (SDL), a 4G and 5G system that enables operators to aggregate certain frequencies for downlink only, sometimes adding unlicensed airwaves to their total downlink capacity.
In the case of FAST, China Telecom is using its existing 2.1 GHz FDD spectrum (initially obtained for 3G) to add uplink capacity to its 3.5 GHz TDD 5G band, so that in an area of weak uplink performance in the higher band, the device can transmit data at a higher speed by using the 2.1 GHz band too.
In areas with good 3.5 GHz coverage, the aggregation of 2.1 GHz and 3.5 GHz can deliver even greater improvements to the user experience, enabling terminals to transmit uplink data, in Uplink Carrier Aggregation (UL CA) mode, via three channels on two frequency bands simultaneously.
Terminals that support only two Tx-channel transmissions can switch flexibly between two channels of 5G New Radio in 3.5 GHz and one channel of FDD 2.1 GHz. Downlink throughput can also be improved with FDD/TDD aggregation.
ZTE’s tests delivered up to 40% better uplink rates for a single user, compared to a single 3.5 GHz carrier, when using simple carrier aggregation. When uplink CA is used, the single-user uplink rate was even better, at 60% higher. In addition, by aggregating high and midband frequencies, the downlink rate was increased by 20%, compared with a 3.5GHz single carrier.
Such examples show how ZTE leverages its R&D investment (about 10% of revenues) and its operator alliances to punch above its weight in terms of 3GPP influence and its patent holdings. The firm was recently named as the third biggest filer of 5G patents in the world, registering 1,424 5G standard-essential patents and applications with ETSI – the keeper of the 3GPP standards – over the past year. The company has also registered over 200 patents pertaining to its 5G chipsets during that time.
In addition, it now holds the vice-chairmanship of both the RAN2 and RAN3 groups within the 3GPP, which gives it a huge influence over the next round of 5G standards-setting. Earlier this year, ZTE’s Sergio Parolari was elected as vice-chair of RAN2, a committee in which he has been involved sine 2010, working on developments including carrier aggregation, dual connectivity, NB-IoT and 5G New Radio.
Another ZTE engineer, Gao Yin, is vice-chair of the RAN3 committee, and ZTE employees are prominent in work on many technical standards across multiple 3GPP groups, including, according to the company, NOMA (non-orthogonal multiple access), 2-Step RACH (random access channel), CoMP (coordinated multipoint), ATSSS (access traffic steering switching and splitting) and 5G network slicing.
There are many risks to western vendors if current tensions continue. As well as reduced access to innovation for operators and partners, Chinese vendors may chase payments for IPR, including standards-essential patents (SEP), more aggressively. China is determined to reduce its dependence on western IPR, and if the industry thought it was hard to define and impose Frand (fair reasonable and non-discriminatory) pricing practices on Qualcomm or Samsung SEP, try doing the same for angry and defensive Chinese firms.
Chinese firms, especially ZTE and Huawei, are estimated to have doubled their share of SEP in 5G compared to 4G, and to have applied for about a third of major 5G patents so far. According to IPlytics, which analyzed applications (not awarded patents, so the exact percentages may change), Chinese firms have applied for 34% of major 5G patents, compared to 25% for South Korea, and 14% each for the USA and Finland. Nokia and its ecosystem seem to be outgunning Ericsson, since Sweden came in at 8% and Japan at 5%, with Taiwan, Canada, the UK and Italy completing the top 10, but with less than 1% each.
The analysis related to 74,500 patents (so many will not be SEP of course), and it found that China’s share of 5G patents so far is about 50% higher than its 4G share, where it matched South Korea, with about 22% each. The USA has a lower share than in 4G, which highlights one reason both for its defensiveness towards China over 5G trade and technology, and the fact that it is in a relatively weak position once patents get dragged into trade wars, especially as Huawei also has IPR in existing 3G and 4G systems – which it may choose to monetize aggressively as a tactic in its battle against the US ban.
However, there is concern that ZTE is not translating its huge IPR and standards body position into sustainable improvement in revenues, despite a cost-cutting program which has boosted margins. Operating profit for the first half of 2019 was CNY2.34bn ($327m), compared to an operating loss of CNY1.75bn ($244m) a year ago. But although revenues were up healthily, that was compared to a dire first half in 2018, and last year, the vendor’s quarterly sales declined year-on-year for four consecutive quarters from Q2 2018 to Q1 2019.
For the second quarter of 2019, revenues were almost double those of the year-ago quarter, at CNY22.4bn ($3.13bn), but not much improved on Q1 2019’s CNY22.2bn ($3.1bn).