Most of the focus, during the recent US-China trade wars, has been on Huawei because of its placement (now apparently suspended) on the USA’s entity list. However, while ZTE escaped the sanctions this year, after suffering a disastrous temporary ban on buying US components in 2018, the second Chinese vendor will not have felt secure. Some US politicians wanted the ban on Huawei to be extended to ZTE, and while both suppliers have been barred from US national infrastructure deals since 2011, the pressure on allied governments to block them from 5G deals has not necessarily been released.
In some ways, ZTE is more vulnerable than Huawei because, as last year’s incident showed, it is far more reliant on US components than its rival, getting about half of its parts from the USA (by contrast Huawei has its HiSilicon division and has invested in some local silicon suppliers too).
However, ZTE has always generated a greater proportion of its network equipment business from China, and from emerging economies in Asia, Africa and the Middle East, than Huawei, and so is less exposed if governments in Europe, Japan and other regions most susceptible to US influence choose to raise barriers to Chinese 5G suppliers. It does boast some of the Three group companies, and a few others, as western infrastructure customers, but its main opportunities lay elsewhere even before the latest chapter in the US sanctions saga.
So while ZTE’s dependence on its home country has often been seen as a weakness, it may currently feel like a reassurance to investors and customers, as long as the company can continue to buy US components, and makes a strong effort to build up alternative supply chains for the future.
And some of ZTE’s other areas of strength will deliver growth of higher proportions than the average European market could provide. India is a key target, as Xiao Ming, the vendor’s president of global sales, told journalists at last week’s MWC Shanghia event.
“India is one of our key markets. It is the second largest telecoms market in the world [after China] and ranks number one in the world in terms of data consumption,” he said, highlighting existing relationships with Indian operators. “We are the main vendor for BNSL and Airtel and we also work very closely with Reliance Jio, although not yet in their radio access network. We already have a good position in India and increased our market share following the merger between Vodafone and Idea Cellular. That is a hugely positive sign for ZTE and we are hiring a lot of staff to support that growth.”
There are many risks in the Indian market though. One is the operators’ notoriously low margins, which drive them to demand lower prices than almost anywhere else in the world. Nokia and other vendors have sometimes backed away from contracts in India because they would be loss-making and although one reason why ZTE is successful in the country is its competitive pricing, it is seeing its own costs rise as Chinese (and Indian) hi-tech labor becomes more expensive.
Ming said: “Operators need to be able to offer something affordable to the population but at the same time they need to be able to make a return on their investment. Operators are struggling.”
ZTE’s strategy is to work with operators to show that, if they invest in the right 5G technologies, they will improve their ROI. “India remains one of the most competitive markets in the world but new technology can help monetize 5G, which is something that operators in India really need to do,” said Ming, pointing to Massive MIMO – a technology where ZTE has a strong position – as an example.
“Massive MIMO technology allows operators to increase capacity and efficiency, using the same amount of spectrum, for their 5G services. It allows them to dramatically reduce the number of sites, by between three and five times. These types of technologies can help operators lower the cost of their network deployment and increase efficiency and capability of their networks in such a low ARPU market. Massive MIMO is a fundamental technology for 5G,” Ming added.
Other risks were acknowledged by the executive, saying: “5G is at a very early stage in India and the main challenges are around spectrum allocation and pricing. If its too expensive, it will limit the roll-out of 5G. It’s already an incredibly disrupted market.
And Indian operators are also under pressure to be cautious about selecting Chinese vendors – partly because the government needs to strike a delicate balance between good relations with two important trade and political partners, the USA and China; partly because India has had national security worries of its own about Chinese suppliers for years. At the start of the 3G and 4G roll-outs, it tried to restrict use of Chinese kit, but was forced by operator backlash to rely on certain rules such as the compulsory placement of source code in escrow.
State-owned BSNL is a flagship ZTE customer, and the two have several partnerships focused on 5G and IoT, but the operator’s chairman, Anupam Shrivastava, recently said about Chinese suppliers: “When it will come to rolling out 5G network, a cautious call will be taken. Should there be a risk in technology, certainly, we won’t go ahead, and as long as it is indigenous and has no hazard in putting it up, we can advance.”
Another cornerstone of Indian technology policy is to insist that operators buy a rising percentage of their equipment from Indian companies, or at least from firms that manufacture in India – a policy which has led to the big network vendors investing in more factories in the country over the past few years.
Another huge future market for mobile networks is Indonesia, the world’s third largest country by population, but to date a fairly slow mover in deploying cellular technologies. ZTE has signed a memorandum of understanding to develop and explore 5G options for incumbent telco and market leader PT Telkom Indonesia, aiming to expedite the development of 5G in the south east Asian nation.
The MoU was signed by ZTE chairman Li Zixue at MWC Shanghai, and the telco said it aimed to launch its first 5G services in the second half of 2020, which would see it moving far more quickly than it did in 3G and 4G. Indeed, mobile broadband coverage remains limited in the country, because of difficult terrain, low ARPUs and average incomes, and a series of political and regulatory disputes and scandals over recent years.
ZTE 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.