& cplSiteName &

Telecom's China Syndrome

Light Reading
5/16/2005
50%
50%

The inclusion of Huawei Technologies Co. Ltd. as a primary supplier for in BT Group plc's (NYSE: BT; London: BTA) 21st Century Network initiative is being viewed a huge step forward into the global marketplace for China's top telecom vendor – and other Chinese telecom vendors by extension.

There's no doubt that Huawei is making exceptional progress in its efforts to enter the international telecom arena, and that China's other big equipment vendors – UTStarcom Inc. (Nasdaq: UTSIE) and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) – are branching out beyond their home market as well.

The emergence of China's Big Three is ratcheting up the fear, uncertainty, and doubt among established incumbent vendors – and there's no denying that a clear and present danger exists, especially for vendors that have slipped into the second tier of suppliers. Buyer perceptions of China's telecom vendors continue to improve, as demonstrated in the 2005 Telecom Equipment Market Perception Study published this spring by Heavy Reading; and the ability of China's vendors to compete aggressively on price can seem limitless.

But there are, in fact, limits to how far China's vendors can go in their price aggression, as the latest edition of Light Reading Insider makes clear. In fact, after a thorough analysis of financial and operational data for China's Big Three, we identify several factors that may ultimately work against these vendors in their efforts to become international players.

Regarding price competition, the biggest advantage that China's vendors hold over suppliers from established markets is its significantly lower labor costs. But how big is that advantage, exactly? We worked the numbers for Huawei, UTStarcom, and ZTE and found that the labor-cost advantage is not as vast as their price-cutting would suggest.

While Chinese vendors often set their prices 25 to 50 percent below incumbent vendors' to win reference customers abroad, the cost advantage held by China's vendors on the labor front is significantly less than that. This report confirms the general view that China's vendors are sacrificing profitability for market share.

Clearly, they cannot continue to do so indefinitely: It's not in their best interests, nor in the interests of the Chinese government, to subsidize foreign telecom carriers. Moreover, as China's vendors increase their sales and marketing personnel in industrial markets, their labor-cost advantage will begin to deteriorate. The bottom line is that the Chinese cannot indefinitely rely on a low-cost strategy to seize business in developed markets.

The problem for Western vendors right now is figuring out a way to withstand the immediate threat from China's telecom suppliers without engaging in a suicidal price battle. Which markets and product sectors are Chinese vendors best positioned to compete in, and which incumbent vendors are at greatest risk from that competition? We managed to uncover some interesting vulnerabilities for each of China's Big Three in terms of product portfolios and market positions – even within their home territory.

One weak spot is wireless infrastructure. Even in their home market, Huawei, UTStarcom, and ZTE combined have managed to win only around 10 percent of the mobile infrastructure contracts awarded to date. As incumbent suppliers of analog systems, Ericsson AB (Nasdaq: ERICY) and Motorola Inc. (NYSE: MOT) have remained the dominant wireless vendors in China. On the GSM front, Nokia Corp. (NYSE: NOK), Siemens AG (NYSE: SI; Frankfurt: SIE), and Alcatel (NYSE: ALA; Paris: CGEP:PA) all succeeded in winning share before Huawei and ZTE launched competing products.

China's big vendors – and particularly Huawei – certainly have a solid opportunity to establish themselves in the global telecom market. But at present, incumbent suppliers still have a chance to defend their turf.

— James Crawshaw, Contributing Analyst, Light Reading Insider

China’s Big Three Vendors Take On the World, a 36-page report in PDF format, is available as part of an annual subscription (12 monthly issues) to Light Reading Insider, priced at $1,350. Individual reports are available for $900.

(3)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Flintstone
50%
50%
Flintstone,
User Rank: Light Beer
12/5/2012 | 3:14:49 AM
re: Telecom's China Syndrome
This is a great topic that needs exploration. The arguments presented thus far make sense from a typical business point of view. Having not seen the full report, I am wondering if Light Reading has a section that deals with the fact that we are not necessarily talking about a typical business operation when we are talking about any major Chinese company, whether it is involved in telecom, automobile manufacturing, etc.

For all of the openness in China--and there has been a lot on the economic front--we are still dealing with a country in which the State either plays a significant role in parts of the economy or can easily do so if wants to. And I am not talking just about heavy regulation or control over what is and what is not allowed to be transmitted over the Internet. I am talking about the continuing role of centralized management of the macro-economy by technically proficient bureaucrats in line with the major modernization goals traced back to Deng XiaopingGÇÖs reforms.

The gist of DengGÇÖs Four Modernizations plan was to increase ChinaGÇÖs economic strength and accelerate modernization across four key sectors GÇô agriculture, industry, science & technology, and the military. This modernization effort relied in large part on increasing foreign trade with industrialized countries in order not only to generate hard currency but to permit China to purchase advanced machinery and technologies from the U.S., Japan, and Europe.

Fast-forward to today, and we see professionals raised on a healthy diet of DengGÇÖs enlightened Communism running the show. In the view of this outsider, the original Modernization program and follow-on plans have been remarkably successful in fueling ChinaGÇÖs economic growth, helping the country gain access to virtually every technology imaginable, and increasing ChinaGÇÖs economic and geopolitical influence throughout the world.

If we are to understand what is happening in Telecom, we must understand there is a much larger game at play here GÇô and the telecom vendor executives in Shenzhen understand they are playing by different rulesGǪeven if no one else does.

So, what should we expect?

Chinese vendors will continue to be brutally aggressive on pricing in order to gain footprints in the worldGÇÖs major operators even if these means they operate with little or no profit for a very long time. Folks must remember, patience is a more highly valued virtue within the Chinese culture, and we can be assured these vendors have a longer term view about what they are doing. They donGÇÖt just want to establish trophy customers. Their goal is to gain ground, hold it, and watch their top-heavy competitors crumble. And crumble they will GÇô as long as the currency exchange rate favors China and government policy makers stay on the sidelines and let market forces run their course.

If you consider the possibility that there is at least minimal coordination and planning among government officials and executives in ChinaGÇÖs telecom sector, then there very well could be two additional motivations for being brutally competitive in trying to establish a foothold in major telco networks.

First, it is unmistakably clear that major Western vendors have little tolerance for pain and are quick to cry uncle when they start losing money. When they cry uncle, there is nearly a 50/50 chance that they will outsource R&D and other business functions to China. In effect, there is a bit of Lenin at play here, as the capitalists sell the rope by which they would be hanged. As vulnerable Western vendors ship more and more technology into China, the Chinese workforce will gain greater experience and make increasingly sophisticated products and solutions. Over time, they will sell more & more platforms into Western and other world markets, with or without partners. In this environment, the only solace the Western vendors can take is the fact that Chinese vendors currently are lousy at marketing and also initially will need some help on the customer service front. Over time, they will gain ground in both these areas.

Second GÇô and here is where folks need to consider the geopolitical environment GÇô it can only serve ChinaGÇÖs longterm strategic interests if its products are deployed in the worldGÇÖs major communications networks. LetGÇÖs be clear. From the standpoint of everyday communications, it really shouldnGÇÖt matter whether a network is built on with Huawei, Nortel, Alcatel, Marconi, or Lucent equipment, as long as it is reliable. But if there ever is a crunch period say 10 or 15 or 20 years out, and China happens to become engaged in a military conflict for any reason, understanding where equipment is deployed, how it operates, and what its vulnerabilities are can be very important in gaining the upper hand in information warfare or in taking down a countryGÇÖs communications network.

Fred Flintstone
flyingsausage
50%
50%
flyingsausage,
User Rank: Light Beer
12/5/2012 | 3:14:48 AM
re: Telecom's China Syndrome
One interesting area to explore is the products themselves manufactured by Chinese vendors.

Most "Western world" telecom vendors used to develop for years very expensive, strong, robust products for incumbent operators (good old time of PSTN networks, X25 technology, ...). Where telcos were investing with ROI of 10 to 20 years, in many cases subsidied by the local governments (before regulations went to liberalize this market).

Now things have changed, uppon competition & financial pressure telcos are looking at 2 to 3 years ROI, cheaper products, where time-to-market is more important than quality. No one cares anymore that a telco box will last for 20 years...
Chinese vendors understood this pretty well, and learned to develop faster & cheaper products.

Actually, achieving a similar level of quality as incumbent western vendors (ok, maybe in 20 years their products may break first...).

This translates into different product design, "cheaper" hardware, more optimized for cost & fast delivery components layout on cards, quicker software architecture design (better make something which works than something nice).

There Chinese vendors defintly have a cost advantage at a product level, giving them more room to discouns/dumping.
Since most western incumbent vendors are already outsourcing a lot in china and india, the labour cost difference is maybe not the most important criteria.
Flintstone
50%
50%
Flintstone,
User Rank: Light Beer
12/5/2012 | 3:14:38 AM
re: Telecom's China Syndrome
FYI...Reuters just issued a report noting that the U.S. Treasury has issued its toughest warning yet on China to deal with the currency issue. Any appropriate response on the part of the Chinese govt is likely to take quite a while, given their recent comments, but there appears the possibility of some relief within the next year or so if the US Congress keeps up the pressure and the European economies continue limping along.

http://money.cnn.com/200
5/05/17/news/international/china_trade.reut/index.htm
From The Founder
Kicking off BCE 2017, Light Reading founder Steve Saunders lays blame for NFV's slow ramp-up and urges telecom to return to old-fashioned standards building and interoperability.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Interviews
CenturyLink: Let's Get Past SD-WAN Hype

6|23|17   |   04:02   |   (0) comments


Technology becomes a "shiny object" unless it's properly focused on solving business needs for enterprise customers, says Bill Grubbs, network solutions architect for CenturyLink. He explains to Light Reading why SD-WAN deployments have to be tailored to specific needs – and more.
Women in Comms Introduction Videos
Infinera's Sales Director Paints Tech's Big Picture

6|21|17   |   4:14   |   (1) comment


Shannon Williams, Infinera's director of sales, shares how she achieves work's many balancing acts -- between her role and the broader company, today and tomorrow's tech and more.
LRTV Custom TV
SD-WAN Innovation & Trends

6|20|17   |     |   (0) comments


Versa CEO Kelly Ahuja discusses with Carol Wilson the current status and trends in the SD-WAN market, Versa's innovation around building a software platform with broad contextualization, and the advantages that startups can bring to the SD-WAN market.
LRTV Interviews
Ovum's Dario Talmesio on 5G in Europe

6|20|17   |   02:16   |   (0) comments


At 5G World 2017, Dario Talmesio, principal analyst and practice leader on Ovum's fixed and mobile telecoms European team, explains the emerging trends amongst European operators as they prepare for 5G.
LRTV Custom TV
Putting Power on a Pedestal

6|19|17   |     |   (0) comments


ARRIS's John Ulm says a major accomplishment of SCTE•ISBE's Energy 2020 program is increased focus on power cost and consumption, including inclusion of energy requirements in operators' RFPs and RFIs.
LRTV Custom TV
Gigabit Access: The Last-Mile Pipe for All Future Services

6|19|17   |     |   (0) comments


A Gigabit access platform being deployed today must be able to deliver all types of services to an increasing number of devices. A non-blocking architecture is necessary to support the ever-increasing growth in bandwidth demand. The Huawei Gigabit access solution is based on a distributed design that is fully scalable to deliver a unprecedented performance.
LRTV Custom TV
Key Factors to Successfully Deploy an SD-WAN Service

6|19|17   |     |   (0) comments


As service providers transition their SD-WAN solution from trials and limited deployments into production at large scale, there are important considerations to successfully operationalize these solutions and realize their full potential, without adding complexity, introducing uncertainty or disrupting current business operations. Sunil Khandekar, CEO and Founder ...
LRTV Custom TV
IoT Solutions: Rational Exuberance

6|19|17   |     |   (0) comments


IoT solutions are morphing from hype into viable business opportunities. Huawei has the platform and ecosystem support to help carriers successfully address new business opportunities in the IoT space.
LRTV Custom TV
Realizing ICN as a Network Slice for Mobile Data Distribution

6|19|17   |     |   (1) comment


Network slicing in 5G allows the potential introduction of new network architectures such as Information-centric Networks (ICN) as a slice, managed over a shared pool of compute, storage and bandwidth resource. Services over an ICN slice can benefit from many architectural features such as Name Based Networking, Security, Multicasting, Multi-homing, Mobility, ...
LRTV Interviews
Ovum's Mike Roberts on 5G Uptake

6|19|17   |   04:08   |   (0) comments


Mike Roberts, research director for Ovum's service provider markets group, explains why he has boosted his 5G subscriptions forecast.
LRTV Interviews
AT&T's Hubbard on Intersection of SD-WAN & MPLS

6|15|17   |     |   (0) comments


Rick Hubbard, SVP of Network Product Management for AT&T Business Solutions, discusses how AT&T's approach to SD-WAN fits in with its overall virtualization strategy, explains how SD-WAN can improve enterprise customers' use of the cloud and addresses the intersection of SD-WAN and MPLS.
Telecom Innovators Video Showcase
Keep Connected IoT Devices Under Control With Allot

6|15|17   |     |   (0) comments


Allot AVP of International Pre-Sales, Daniel Keidar, explains how communications service providers can protect infrastructure and service availability from flooding attacks caused by malfunctioning or bot-infected devices connected to their network.
Upcoming Live Events
October 18, 2017, Colorado Convention Center - Denver, CO
November 1, 2017, The Montcalm Marble Arch
November 1, 2017, The Montcalm Marble Arch
November 30, 2017, The Westin Times Square
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
Netflix's Lesson in Culture Expectation Settings
Sarah Thomas, Director, Women in Comms, 6/21/2017
No Imagination: UK Chip Biz Goes Up for Sale
Iain Morris, News Editor, 6/22/2017
Kalanick Steps Down as Uber CEO
Sarah Thomas, Director, Women in Comms, 6/21/2017
BT Tech Chief Makes Plea to 5G Chip Vendors
Ray Le Maistre, International Group Editor, 6/20/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Following a recent board meeting, the New IP Agency (NIA) has a new strategy to help accelerate the adoption of NFV capabilities, explains the Agency's Founder and Secretary, Steve Saunders.
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
Animals with Phones
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.