Huawei's Core Euro Breakthrough

Huawei Technologies Co. Ltd. has put itself on a par with the mobile sector's most powerful players and is actually outmaneuvering its rivals in some key accounts, such as T-Mobile International AG , according to a leading wireless industry analyst.

Patrick Donegan, senior analyst, wireless, at Heavy Reading, says Huawei's new contract with T-Mobile in Europe is highly significant for the Chinese vendor and the market in general. (See Huawei Wins T-Mobile Deal.)

Huawei is supplying and installing Packet Switched Core Networks infrastructure elements -- its Serving GPRS Support Node (SGSN) and Gateway GPRS Support Node (GGSN), the two key data network elements in GSM and WCDMA/3G networks -– in T-Mobile's networks in Germany, the U.K., Austria, the Netherlands, and the Czech Republic.

The SGSN is roughly the equivalent of an edge router in a wireless network, and routes data traffic to the most appropriate GGSN, which is roughly the equivalent of a core router. The GGSN is vitally important to mobile operators as it: acts as the link between the carrier's infrastructure and other IP networks, such as the Internet; facilitates inter-carrier roaming; enables policy management; and enables the rating and billing of content services.

The deal involves the replacement of existing infrastructure, which has been supplied during the past few years by Nortel Networks Ltd. . (See Nortel Wins Austrian Contract and T-Mobile Bills With Nortel.)

"From a revenue standpoint this is not Huawei's most important European deal, but, strategically, this is conceivably its most important European mobile infrastructure contract to date," says the analyst.

"The wireless business Huawei has won so far with other major European mobile carriers," such as Telecom Italia Mobile SpA (Milan: TIM) and Vodafone Group plc (NYSE: VOD), "has been at the periphery of the account, but this deal is right at the heart of T-Mobile," and includes many of the carrier's main European markets, he explains. (See Huawei Wins at TIM, Vodafone Selects Huawei, and V'fone Czechs Out Huawei.)

"The GGSN is strategically important, and provides the possibility to grow as FMC grows and as IMS is introduced. It's a key network element, especially as HSDPA services grow," adds Donegan.

So what prompted T-Mobile to go with Huawei, and what does this mean for Nortel? The carrier had not responded to questions as this article was published, while Nortel declined to comment.

Huawei's win does not bode well for the Canadian vendor, though. T-Mobile has been a key European account for its packet core team, which is currently in technical limbo as it works on a new wireless data node product for 4G networks that will succeed its legacy Shasta platform. (See Nortel Mothballs Shasta and Zafirovski: We'll Get 4G Right.)

Huawei gets stronger
As for Huawei, winning with the German carrier is not important just because of the operator's scale and respectability. "T-Mobile is a very demanding customer that's at the leading edge of technology deployments. To bring Huawei to the center of the business is a gigantic win for the vendor. This is part of a wider trend of Huawei taking a more front and center role in the mobile sector," says the analyst.

That trend extends beyond the radio access network (RAN) and core data nodes too, continues Donegan. "You can see this is in Ethernet backhaul for WCDMA deployments, too. Huawei is walking the walk in Asia, and is better positioned to bring this to commercial service than the other leading RAN vendors."

The other leading RAN vendors include Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), Motorola Inc. (NYSE: MOT), and Nokia Siemens Networks .

"Huawei is transitioning from being an aggressive new entrant to being on a par with the major vendors and outmaneuvering them in some leading accounts," continues the analyst, but he adds that the Chinese company is still attracting business by pitching low prices to prospective carrier customers.

"Huawei continues to offer aggressive prices and to win wireless deals in Asia where it's difficult, if not impossible, to see how they can be making any money from the deal. This is a continuation of the strategy that has got them where they are today," says Donegan.

The Chinese vendor is also gaining ground on the traditional players in many fixed line infrastructure sectors, is still breaking into new markets, and continues to grow in size and stature, though it's also still suffering from the occasional local difficulty. (See Huawei Goes Underwater, Police Raid Huawei Offices in Brazil , Huawei Puts VOIP on 3G, Huawei Pumps Up Asian Biz, Packet Optical Market Set to Explode, and Huawei Touts IP DSLAM Lead.)

Huawei signed contract orders worth $11 billion in 2006, and reported audited revenues for the year of $8.5 billion. It says it's on course to sign contract orders worth $15 billion this year.

— Ray Le Maistre, International News Editor, Light Reading